Question: An analyst for FoodMax estimates that the demand for its
An analyst for FoodMax estimates that the demand for its Brand X potato chips is given by ln Qdx = 12.14 – 2.8 ln PX + 3.4PY + 0.7 ln AX, where QX and PX are the respective quantity and price of a four- ounce bag of Brand X potato QXd 12.14 2.8 chips, PY is the price of a six-ounce bag sold by its only competitor, and AX is FoodMax’s level of advertising on Brand X potato chips. Last year, FoodMax sold 7 million bags of Brand X chips and spent $ 0.42 million on advertising. Its plant lease is $ 2.1 million (this annual contract includes utilities) and its depreciation charge for capital equipment was $ 2.8 million; payments to employees (all of whom earn annual salaries) were $ 0.8 million. The only other costs associated with manufacturing and distributing Brand X chips are the costs of raw potatoes, peanut oil, and bags; last-year FoodMax spent $ 2.8 million on these items, which were purchased in competitive input markets. Based on this information, what is the profit-maximizing price for a bag of Brand X potato chips?
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