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Suppose that Danforth's marginal cost of a leather belth is $200 and at one of the firm's shops, total fixed cost is $500 a day. The profit maximizing number of leather belt sold in this shop is 30 a day. Then the shops nearby from other retailers start advertising their belts. The Danforth's shop decides to spend $1,000 a day advertising its leather belt, and its profit maximizing number of leather belts sold jumps to 60 a day.
Before advertising: Suppose that the price elasticity of demand is 2. Can you compute the price of a Danforth's leather belt? And the markup? Please, compute the amount of maximal profits.
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