Reference no: EM13221937
-Tot-R-Us operates the only day-care center in an exclusive neighborhood just outside of Washington D.C. Tot-R-Us is making substantial economic profit, but the owners know that new day-care centers will soon learn of this highly profitable market and attempt to enter the market. The owners decide to begin spending immediately a rather large sum on advertising designed to decrease elasticity. Should they wait until new firms actually enter? Explain how advertising can be employed to allow Tots-R-Us to keep price above average cost without encouraging entry.
-The Harley-Davidson motorcycle company, which had a copyright on the word "hog" applied for exclusive rights to its engine sound. Why would a company want copyrights on two such mundane things?
- The Ali Baba Co. the only supplier of a particular type of Oriental carpet. The estimated demand for its carpets is
Q = 112,000 - 500P + 5M
Where Q = number of carpets, P= price of carpets (dollars per unit), and M = consumers' income per capita. The estimated average variable cost function or Ali Baba's carpet is
AVC = 200 - 0.012Q + 0.000002Q2
Consumers' income per capita is expected to be $20,000 and total fixed cost is $100,000.
a. How many carpets should the firm produce in order to maximize profit?
b. What is the profit-maximizing price of carpets?
c. What is the maximum amount of profit that the firm can earn selling carpets?
d. Answer parts a through c if consumers' income per capita is expected to be $30,000 instead.
- A firm with two factories, one in Michigan and one in Texas, has decided that it should produce a total of 500 units to maximize profit. The firm is currently producing 200 units in the Michigan factory and 300 units in the Texas factory. At this allocation between plants, the last unit of output produced in Michigan added $5 to total cost, while the last unit of output produced in Texas added $3 to total cost.
a. Is the firm maximizing profit?
If the firm produces 201 units in Michigan and 299 in Texas, what will be the increase or decrease in the firm's total cost?
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