Reference: Many who have poor knowledge of how market works believe that, "the higher the price, the higher the profits." Assume a firm has control over the price and can set its price. Further, assume the market (inverse) demand is linear and is given by: p = a-bq and the marginal cost is constant and equals c. Using these demand and cost conditions..

Compare a linear demand function of the type p = a-bq with another demand function of the type p = a/q and discuss:

(a) the important differences (e.g., how much the consumers will spend when the expenditure increases or decreases etc.) between the two types of demand functions.

(b) Suppose for a given market demand, profit is maximized at a price of $4 per unit. Is the revenue maximizing price higher, lower or equal to the profit-maximizing price of $4 per unit? Explain why? Under what conditions both prices could be the same?