Posted: January 14th, 2017
The Madison Corporation, a monopolist, received a report from a consulting firm concluding that the demand function for its product is:
Q + 78 1.1P + 2.3Y + 0.9A
where Q is the number of units sold, P is the price of its product (in dollars), Y is per capita income (in thousands of dollars), and A is the firm s advertising expenditure (in thousands of dollars). The firm s average variable cost function is:
AVC + 42 8Q + 1.5Q2
where AVC is average variable cost (in dollars).
a. Can one determine the firm s marginal cost curve?
b. Can one determine the firm s marginal revenue curve?
c. If per capita income is $4,000 and advertising expenditure is $200,000, can one determine the price and output where marginal revenue equals marginal cost? If so, what are they?
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