Question
The Leyland Pitt Corporation makes small wine refrigerators. The refrigerators are differentiated (rather than commodities), so you can consider the company to be in a
The Leyland Pitt Corporation makes small wine refrigerators. The refrigerators are differentiated (rather than commodities), so you can consider the company to be in a monopolistically competitive industry. Leyland dupedencouraged some EMBA students to analyze his past sales as well as some customer survey data and they estimated that the demand curve for Leyland's refrigerators is P = 1000 - 25Q,
where P is the price (in dollars) of a refrigerator and Q is the number of refrigerators sold per month. Analysis of his expenses indicates that he has fixed costs of real estate and managerial staff of $6,000/month and that the marginal cost of producing refrigerators is a constant $150 per refrigerator.
- To sell 20 refrigerators per month, what price would Leyland have to charge?
- If he sets a price of $250, how many refrigerators will Leyland sell per month?
- What is the own-price elasticity of demand at the point where price equals $250?
- At what price will Leyland maximize monthly revenue?
- What is Leyland's average unit cost at the quantity where he maximizes revenue?
- At what price and quantity will Leyland maximize his monthly profit?
- Draw a graph depicting the Leyland Pitt Corporation's demand curve, marginal cost curve, and average cost curve.
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