4

A monopolist faces a linear demand curve q = 23 4p + 2A, where p is the per unit market price and A is the monopolist's expenditure on advertising. The monopolist has constant marginal cost of production given by MC=5, and has no fixed costs. (a) Write out the monopolist's profit funcon. (b) Solve for the zeroslope condition with respect to the market price p and the level of advertising A. (c) Use the two zero-slope conditions to solve for the monopolist's profit maximizing price and level of advertising expenditure. (d) Confirm that the advertisingtosales ratio is equal to the ratio of the advertising elasticity and the price elasticity of demand