A firm has developed a new product for which it has a registered trademark. The firm’s market research department has estimated that the demand for this product is Q(P,A)=11,600-1,000P+20A^1/2 where Q is annual output, P is the price, and A the annual expenditure for advertising. The total cost of producing the new good is C(Q)=.001Q^2+4Q. The unit cost of advertising is constant at m=1.

 Questions

What is the optimal output level Q*?

What is the optimal price P*? 

What is the advertising level A* for the firm?  What is the firm’s profit if it follows this strategy?

What is consumer surplus if the firm adopts this strategy?

Answer rating: 100% (QA)

Answer To find the optimal output level price and advertising level for the firm we need to maximize ... View the full answer