The Patches Printing Company has recently expanded its product line to include a set of four- color Christmas and other Seasons Greetings cards. For the past three months it has been build¬ ing up inventories and keeping records of total costs associated with the output in each month. These are as follows:

August: 1,500 dozen cards, total cost $8,700 September: 4,650 dozen cards, total cost $24,645 October: 3,300 dozen cards, total cost $14,520 In the meantime PPC’s market research group have conducted an investigation into the demand side of the year-end greeting card market and have arrived at the following regression equation and associated statistics:

Q = 8.41764 — 0.911P where Q is quantity demanded in thousands of dozens per month, and P is price per dozen at the wholesale level. The coefficient of determination was 0.8652, the standard error of estimate was 0.6385, and the standard error of the coefficient was 0.3861.

(a) Estimate and plot on a graph the demand and marginal revenue curves PPC might expect to face.

(b) Plot on a graph your estimate of the average and marginal cost curves on which PPC is operating.

(c) What is the profit-maximizing price and output level you would recommend for PPC over the year-end sales period?

(d) What qualifications and assumptions underlie your analysis?