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Consider a firm that faces the demand curve : P= 1050 - Q + 0.2B^(0.5) and has total cost function: TC = 50Q + B,
Consider a firm that faces the demand curve : P= 1050 - Q + 0.2B^(0.5) and has total cost function: TC = 50Q + B, where B is the level of advertising expenditures, P is price, and Q is output.
A. Derive pi(B), the profit function in terms of B. (HINT: find the profit maximizing quantity in terms of B and plug into the profit function.)
B. Calculate the range of advertising spending, B, that increases this firms profits above what it would get if it didn't advertise.
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