N2

A monopolist faces a linear demand curve q = 23 - 4p + 2A, where p is the per unit market price and A is the monopolist's expenditure on advertising. The monopolist has constant marginal cost of production given by MC=5, and has no fixed costs. (a) Write out the monopolist's profit function. (b) Solve for the zero-slope condition with respect to the market price p and the level of advertising A. (c) Use the two zero-slope conditions to solve for the monopolist's profit- maximizing price and level of advertising expenditure. (d) Confirm that the advertising-to-sales ratio is equal to the ratio of the advertising elasticity and the price elasticity of demand.