Question: Ajax, Inc. is a monopolist. The estimated demand function for its product is Qd = 120 0.8P + 12Y + 4A Where Qd denotes

Ajax, Inc. is a monopolist. The estimated demand function for its product is Qd = 120 – 0.8P + 12Y + 4A

Where Qd denotes quantity demanded, P denotes price, Y denotes personal income (in thousands of dollars), and A denotes advertising expenditures in hundreds of dollars.

Ajax’s marginal cost function is given as

MC = 21 + 4Q

Assume Y equals 3 and A equals 3 and fixed costs equal $1000

a. What is the inverse demand function? (The equation demand equation in the form

P = a – bQd)?

b. What is the profit maximizing price and quantity of output for Ajax, assuming it is an unregulated monopoly? What are its profits?

c. If fixed costs increase to $1200, what will happen to equilibrium price and quantity?

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