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(a) Barbara is a producer in a monopoly industry. Her demand curve (Q) and total cost (TC) curve are given as follows: Q = 160 - 4P TC=40 (i) Calculate the level of output Barbara will produce. Answer: 72 [2 Marks] (ii) Determine the price of her product. Answer: $22. [2 Marks] Compute the level of profit that she will make. Answer: $1,296 [2 Marks] (iii) Suppose that a tax of $2 for each unit produced is imposed by state government. Determine the new levels of Barbara's output, price and profit. Answer: Output = 68 [2 Marks] Price = $23 [2 Marks] Profit = $1292 [2 Marks] [6 Marks] (iv) Suppose that in addition to the tax, a business license is required to stay in business. The license costs $500. What happens to Barbara's profit? Answer: $792 [3 Marks]4. The demand for action figures based on characters from children's movies is extremely high around the time the movie is released. In this peak period. demand for action figures is : QR* = 300,000 - 10,000P Some time after the movie released, interest in the action figures wanes. In this lull period, demand for the action figures becomes: Q, = 100,000 - 25,000P Suppose the marginal costs of producing the action figures are constant at RM1.50. (i) Determine the optimal price and quantity in each period. (ii) What type of pricing strategy implemented for the demand of action figures above? Briefly explain. Answer: (1) Optimal pricing in the period following the movie release is to set marginal revenue equal to marginal cost. Peak period: Q =142,500 P =RM15.75 Lull period: Q = 31, 250 P =RM2.755. Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States. The demand for BMWs in each market is given by: QE = 4,000,000 - 10OPE Qu = 1,000.000 - 20Pu where the subscript E denotes Europe, the subscript U denotes the United States. What quantity of BMWs should the firm sell in each market, and what should the price be in each market? What should the total profit be? Answer: P - 40,000 -0.010, and A = 50.090 -0.050. MR. - 40,000 -0.020. and MR - 50,000-0.10. 40,000 -0.020, - 20,000. or Q. - 1,000,000 cars in Europe, and 50,000 - 0.10, - 20,000, or . =300,000 cars in the United States P - 40,000 - 0.01(1,000,000) = $30,000 in Europe, and P. = 50,000 - 0.05(300,000) = $35,000 in the United States # -34.5 billion