Question
Stella's Coffee Emporium sells special cups of coffee which allow you to remember all the unique formulae in the ECO1010.1110 syllabus. The firm faces a
Stella's Coffee Emporium sells special cups of coffee which allow you to remember all the unique formulae in the ECO1010.1110 syllabus. The firm faces a demand curve equal to = 100 2 and can produce cups of coffee according to = 100 + 5. a) Calculate an expression for the marginal revenue curve. [2] b) Calculate the marginal revenue of the 10th cup and compare this MR to the marginal cost of production. [3] c) Given your answer in b), should Stella decrease production, increase production or remain at the current level of production? Justify our answer. [3] d) If Stella would like to maximise profit, how many cups of coffee should she sell? (use the MR=MC approach for this question) [2] e) Calculate the price elasticity of demand when Stella maximises profit. [3] f) Calculate the price elasticity of demand when Stella chooses to maximise the total revenue. What do you notice? [3]
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