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The current manager of a small bicycle shop estimates the demand curve for a child's starter bike to be: P = 80 - 2Q. Costs are given by C = 200 + 20Q. The former owner of the shop (now retired) urges the manager to keep prices low so as to increase sales and maximize revenue. (The shop pays the former owner 5% of each dollar of earned revenue.) If current management follows the former owner's goal, what sales output and price should it set? What strategy would you recommend for management?

Microeconomics, Economics

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