You are a monopolist in a market. From market research, you have obtained the following demand...
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You are a monopolist in a market. From market research, you have obtained the following demand function that explains how your price (P in dollars) and advertising (A in thousands of dollars) choices influence the quantity demanded (Q in thousands of units). Q = 20 - 6P You currently spend $1,000 on ads. The marginal cost of producing your product is $1 per unit. A new entrant is planning on entering the market. Which will change your demand equation to: Q = 18-9P Your analyst suggest that you can increase your advertising spend to keep out this potential entrant. Questions: 3a) What is current your profit maximizing price, quantity sold, and profit? (6 points) 3b) How much more on advertising are you willing to spend to keep out the potential entrant? (5 points) You are a monopolist in a market. From market research, you have obtained the following demand function that explains how your price (P in dollars) and advertising (A in thousands of dollars) choices influence the quantity demanded (Q in thousands of units). Q = 20 - 6P You currently spend $1,000 on ads. The marginal cost of producing your product is $1 per unit. A new entrant is planning on entering the market. Which will change your demand equation to: Q = 18-9P Your analyst suggest that you can increase your advertising spend to keep out this potential entrant. Questions: 3a) What is current your profit maximizing price, quantity sold, and profit? (6 points) 3b) How much more on advertising are you willing to spend to keep out the potential entrant? (5 points)
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Accounting
ISBN: 978-0324188004
21st Edition
Authors: Carl s. warren, James m. reeve, Philip e. fess
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