Q2. Suppose that a price setting firm has the following direct demand function:

Qd = 100-20P

a. Find the inverse demand curve. What is it's slope and it's intercept.

b. Find the equation for Total Revenue.

c. Find the equation for Marginal Revenue.

d. What is the quantity where Total Revenue is maximized? How is this related to Marginal

Revenue?

e. Calculate the own price elasticity of demand at the quantity where Total Revenue is maximized.

f. A decrease in price below $2.00 will do what to Total Revenue? To Marginal Revenue? Why?

Hint: Drawing the two graphs (the one with D and MR drawn against Q and the second with TR

drawn against Q might help.

g. Suppose now that the firm is a profit maximizing firm, and that MC = 2.5 + .025Q. Find the profit

maximizing output and price. There is a review of graphing in your studying for the exam module.

Calculate the own price elasticity of demand at the profit maximizing price and output.

h. Given your results, is there a difference between maximizing Revenue (part d) and maximizing

profits (part g). Why?