Econ 400 Spring 16 Assignment 1

# Econ 400 Spring 16 Assignment 1 - Elena Antoniadou Econ 400...

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Elena Antoniadou Econ 400 – Managerial Economics Assignment 1 Due in Class on Tuesday February 9 1. In a small city there is only one fortune- teller who acts as a monopoly. The inverse demand function for this service is given by p=12-0.5Q where p denotes the price charged per visit, and Q the quantity demanded for fortune telling (assume it is a continuous variable). (a) Suppose the cost function of this fortune- teller is given by C ( Q ) = 4 + 2 Q. Compute and draw the fortuneteller’s marginal cost and average functions, as well as the marginal revenue function. (b) Compute the fortune-teller’s profit-maximizing linear price, output, and profit. (c) Compute the price elasticity at the profit-maximizing output. (d) Suppose now that the cost function of this fortune- teller has changed and is now given by C ( Q ) = 4 + Q 2 . Compute and draw the fortune -teller’s new marginal and average cost functions as well as the marginal revenue function and its profit-maximizing price and output. Find its profits. (e) Suppose that the d e mand function faced by a monopoly fortune-teller is instead constant elasticity and is given by Q = 120 p 2 .

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