Hoodies Inc. is one of several stores in the Mall of America and one of dozens of
Question:
Hoodies Inc. is one of several stores in the Mall of America and one of dozens of stores in the Twin Cities that sell hoodies. Each store's hoodies reflect the style of that store. Additionally, some stores use higher quality fabric than others, reflecting in their price. Daily demand and cost functions for Hoodies, Inc:
Demand P(Q) = 100 - 0.4*Q
Total cost TC(Q) = 0.1*Q2 + 500
Marginal cost MC(Q) = 0.2*Q
a. Identify which of the four market structures best describes the market in which Hoodies operates. Briefly explain.
b. State the marginal revenue function (MR as a function of Q) that is specific to this demand function.
c. What is Hoodies Inc. profit maximizing daily number of Hoodies to sell and which price should be charged for each hoodie?
d. Calculate the maximum profit that Hoodies can earn each day.
e. Suppose Hoodies' demand and cost functions for selling hoodies is similar to other firms in this market. What does theory predict will happen to the price of hoodies over the long run in this market? Briefly explain, incorporating the concept of the own- price elasticity of demand. You should assume that the cost functions above incorporate all implicit and explicit costs of production.