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Question 1 Your firm recentlv discovered a new toothpaste that eliminates the need for flossing. Your marketing department has estimated that annual demand for such
Question 1 Your firm recentlv discovered a new toothpaste that eliminates the need for flossing. Your marketing department has estimated that annual demand for such a toothpaste would be: dd : 4,000,000*l{20 p] which implies that aquap = 4,000,000 and that marginal revenue is just 20 ql2,000,000. Your marginal cost of production is just $2,!unit. There are no fixed costs. 1.1 What is the profit-maximizing price and quantity? What is the markup? 1.2 if the marginal cost of production falls (to some constant less than $2lunit}, what happens to producer surplus? Consumer surplus? 1.3 You learn that your competitors are creating a verv similar product that will drive your economic profits to zero after one vear. If the total (sunk) cost of research 8! development and advertising is $40,000,000, what are your total economic profits from this product? 1.4 Suppose your marketing department gets back to you with a revised demand equation. It turns out that the profit-maximizing quantity is the same, but that swap 2 -6,000,000. What do you expect to happen to your firm's profits
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