Suppose that you sell Lady Gaga wigs for Halloween. Demand for wigs is given by:

() = 20000 20.

You are lucky enough to be the only seller of Lady Gaga wigs in the entire country. Your

costs are given by the total cost function:

() = 2000 + 5.

a) What is your revenue function? What is the marginal revenue function?

b) What are the revenue maximizing output level and price?

c) What is your profit function? What are your profit maximizing output level and price?

d) Plot the demand curve, marginal revenue curve, marginal cost curve, and the revenue

maximizing and profit maximizing output and price, on a graph. (The graph does not need

to be precise but must correctly reflect the relative position of the marginal revenue and

demand curves, and the difference between revenue maximization and profit

maximization).

e) Calculate profits under revenue-maximizing and profit-maximizing pricing. Which of

the two profits is higher? Explain.