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I estimate the following demand function for a watch I produce and sell: Q = 10000 - 4P +200PR Where: Q = quantity demanded in
I estimate the following demand function for a watch I produce and sell:
Q = 10000 - 4P +200PR
Where:
Q = quantity demanded in units
P = price in dollars
PR = number of YouTubers who positively review my watch
We are currently operating at the following values:
P = $400
PR = 10
In addition, suppose MC is $300.
Given all this, please answer the following questions:
- (1 point) Derive the firm's current demand curve and calculate and interpret the firm's current price elasticity of demand. Be as precise as you can with your elasticity interpretation.
- (1 point) Given my answer in b, should the firm increase or decrease output to maximize profits(NOT revenues)? Explain and show your work on a well-labeled graph. Hint: your graph should indicate the current output level and the profit-maximizing output level.
- (2 points) What is the profit-maximizing output and price? Show and explain all your work and match up your answer to your work in part b.
- (2 points) Suppose I want also to incorporate YouTubers who give a negative review. How would I go about doing so and what do you think the impact of this would be relative to positive reviews? Note:there isn't just one clear answer.
- (2 points) What is the conceptual difference between an increase in demand and demand becoming more inelastic? Provide an example of a factor that could cause and increase in demand, and then provide a different example of a factor that caused demand to become more inelastic.
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