Consider the following demand functions and total cost function faced by a monopolist where Q is output, P_{L} is the price based on low demand, and P_{H} is the price based on high demand.
Q = 50 – 0.25P_{L} Low Demand Function
Q = 200 – 0.50P_{H} High Demand Function
TC = 2,500 + 50Q + 0.50Q^{2 }Total Cost Function
Suppose that there is a 75% chance of low demand and a 25% chance of high demand.
1) Determine the monopolist’s profit maximizing level of output.
2) Determine the monopolist’s expected profit maximizing price.
Question #2
Consider the following demand function for frozen dinners where Q_{D} is the quantity of frozen dinners demanded per week, P is the price per frozen dinner, P_{F} is the price per fast food meal, Y is the average yearly consumer income, and A is the number of advertisements for frozen dinners.
Demand Function for Frozen Dinners: Q_{D} = 1,000 – 10P + 20P_{F} – 0.01Y + A
Suppose that a frozen dinner sells for $4, a fast food meal sells for $6, average yearly consumer income is $50,000, and that there are 20 advertisements for frozen dinners.
Consider the following demand functions and total cost function faced by a monopolist where Q is output, P_{L} is the price based on low demand, and P_{H} is the price based on high demand.
Q = 50 – 0.25P_{L} Low Demand Function
Q = 200 – 0.50P_{H} High Demand Function
TC = 2,500 + 50Q + 0.50Q^{2 }Total Cost Function
Suppose that there is a 75% chance of low demand and a 25% chance of high demand.
Price

Quantity Demanded


$25  20 
$20  40 
$15  60 
$10  80 
$5  100 
Interval

Price Elasticity of Demand

Elastic, Inelastic, or Unit Elastic


From P = $25 to P = $20  
From P = $20 to P = $15  
From P = $15 to P = $10  
From P = $10 to P = $5 

Consider the following. Demand Function Quantity Demanded
p = 800 − 3x x = 19
Find the price elasticity of demand for the demand function at the indicated xvalue.
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