Question
The Juice Shop sells iced soft drinks. Management has found that demand is estimated by the equation: Q = 2,000 - 480P + 160PC, where
The Juice Shop sells iced soft drinks. Management has found that demand is estimated by the equation: Q = 2,000 - 480P + 160PC, where Q denotes the number of drinks sold per day, P is the drink's price, and PC is the price of drinks at a nearby caf.
i. How many drinks will be sold if P = $2.25 and PC = $1.80?
ii. Write down the equation for the firm's demand curve for PC = $1.80.
iii. If the other caf's price increases to $2.25, what is the effect on The Juice Shop's demand curve (up, down, left, right, by how much)?
iiii. For a good that has a price elasticity of demand of 1.5 and a marginal cost of $50 per unit, what is the profit-maximizing price?
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