Question
A firm has developed a new product for which it has a registered trademark. The firms market research department has estimated that the demand for
A firm has developed a new product for which it has a registered trademark. The firm’s market research department has estimated that the demand for this product is Q(P,A)=11,600-1,000P+20A^1/2 where Q is annual output, P is the price, and A the annual expenditure for advertising. The total cost of producing the new good is C(Q)=.001Q^2+4Q. The unit cost of advertising is constant at m=1.
Questions
What is the optimal output level Q*?
What is the optimal price P*?
What is the advertising level A* for the firm? What is the firm’s profit if it follows this strategy?
What is consumer surplus if the firm adopts this strategy?
Step by Step Solution
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Answer To find the optimal output level price and advertising level for the firm we need to maximize ...
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Microeconomics An Intuitive Approach with Calculus
Authors: Thomas Nechyba
1st edition
538453257, 978-0538453257
