Reference no: EM132484578

You have a monopoly over the production and sale of "Oompahorns," a patented new instrument for bands and orchestras. Your marketing experts have estimated that the annual worldwide demand for Oompahorns is as follows:

Q = 1,000,000 - 1,000 P

where Q is the quantity of Oompahorns, and P is the price of an Oompahorn in dollars.

Your production engineers have estimated that the production of Oompahorns will require initial set-up costs of $30 million and marginal costs of production of $400 per Oompahorn.

1. Based on this information, what price should you charge and what quantity should you produce and sell? 

2. What is the elasticity of demand at this price and quantity?

3. The City of New York, always desperate for tax revenue and realizing that the Bronx is the only realistic place that Oompahorns can be manufactured, decides to place a special annual tax of $20 million on your operations. How will this affect your price and quantity decisions?

4. Since your predicted sales are worldwide, is there additional demand information that would be of interest to you?