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December 22, 2014

Homework Help: Economics

Posted by Long Weekend on Friday, July 31, 2009 at 6:45pm.

The Ali Baba Co is the only supplier of a particular type of Oriental carpet. The estimated demand for its carpets is Q= 112,000 – 500P + 5M, where Q= number of carpets, P= price of carpets (dollar per unit), and M= consumers income per capita. The estimated average variable cost function for Ali Baba’s carpets is AVC= 2000 – 0.012Q + 0.000002Q2

Consumers income per capita is expected to be $20,000 and total fixed cost is $100,000
#1. How many carpets should the firm produce in order to maximize profit?
#2. What is the profit maximizing price of carpets?
#3. What is the maximum amount of profit that the firm can earn selling carpets?
#4. Answer parts a through c if consumer’s income per capita is expected to be $30,000 instead.

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