Question
6. Amalgamated Popcorn, Inc. sells bags of flavored gourmet popcorn in a popular mall. As shop owner and operator, Rhea estimates the demand for flavored
6. Amalgamated Popcorn, Inc. sells bags of flavored gourmet popcorn in a popular mall. As
shop owner and operator, Rhea estimates the demand for flavored popcorn to be: Q = 1,200 -800P + 2A, where A denotes advertising weekly spending (in dollars), Q is the bags of
popcorn demanded and P is the price of a bag of popcorn. She is currently charging $1.50 per bag of popcorn (for which the marginal cost is $0.75) and spending $500 per week on
advertising.
(a) Compute the store's price elasticity and advertising elasticity.
(b) Check whether the current $1.50 price is profit maximizing. If not, determine the store's
optimal quantity and output.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started