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Suppose that a price setting firm has the following direct demand function:

Qd = 100-20P

  • Find the inverse demand curve. What is it's slope and its intercept?
  • Find the equation for Total Revenue.
  • Find the equation for Marginal Revenue.
  • What is the quantity where Total Revenue is maximized? How is this related to Marginal Revenue?
  • Calculate the own price elasticity of demand at the quantity where Total Revenue is maximized.
  • A decrease in price below $2.00 will do what to Total Revenue? To Marginal Revenue? Why? Hint: Drawing the two graphs (the one with D and MR drawn against Q and the second with TR drawn against Q might help.
  • Suppose now that the firm is a profit maximizing firm, and that MC = 2.5 + .025Q. Find the profit maximizing output and price. Calculate the own price elasticity of demand at the profit maximizing price and output.
  • Given your results, is there a difference between maximizing Revenue (part d) and maximizing profits (part g). Why?

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M92018531
  • Price:- $25

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