Question
A monopolist faces the market demand Q= A+402-P, where A is the level of advertising. To reach a level of advertising A, the monopolist must
A monopolist faces the market demand Q= A+402-P, where A is the level of advertising. To reach a level of advertising A, the monopolist must spend A2. The monopolist's production cost function (i.e. excluding advertising) is given by C(Q) = 10 + 2Q +Q2.
a. What is the marginal cost for this firm? b. What is the monopolist's marginal revenue function? c. Suppose that A=4. What would be the profit-maximizing quantity and price for the firm? d. How much profit does it make at this equilibrium? And if we take the advertising costs into account? e. Now assume that A can take any value. For a given A, what would be the profit-maximizing the output of the monopolist and the corresponding level of profit? (All of these answers will be functions of A).
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