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Frank owns a hot-dog stand. It costs him$1 to make each hot dog and he faces a linear price-response functiond(p) = (100-8p)+for each day. Find
Frank owns a hot-dog stand. It costs him$1 to make each hot dog and he faces a linear price-response functiond(p) = (100-8p)+for each day.
- Find Frank's contribution-maximizing price and the corresponding contribution. (For this and following questions, allow non-integer units of sales for simplicity.)
- Suppose a big hot-dog franchise offers him a contract. According to the contract, the franchise will provide an unlimited number of prepared hot dogs per day for a fixed cost ofKdollars per day. If Frank accepts this contract, what is his optimal price?
- For what values ofKshould Frank accept the contract if he is maximizing profit?
4. Now the franchise offers Frank a new contract that charges a daily fixed cost of$25. However, they will provide at most 40 hot dogs to Frank every day. Should Frank accept this offer? Explain your answer.
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