You are the newly hired pricing manager of your firm. Currently, the firm uses cost-plus pricing as its pricing model.

The marginal cost of producing your product is $1 per unit. The total fixed costs of running the manufacturing business for the year are $7,000. You also expect to spend $3,000 on advertising. Last, you expect to sell 5,000 unit based upon the estimates of the prior manager. Your firm sets a 50% mark up.

However, the actual demand function that explains how your price (P in dollars) and choices influence the quantity demanded (Q in thousands of units). This demand schedule shows how many units you will sell this year.

Q = 30 - 6P

3b) How much profit does the firm expect to make using cost-plus pricing? What will be the actual profit the firm will make given the demand function? What does this suggest about the strength of the market?