EC_315_Problems1 - EC 315 Review Problems David Wong(1 You...

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EC 315: Review Problems David Wong February 22, 2009 (1) You are the owner-manager of a small furniture manufacturing firm, JD Industry, that makes chairs. The yearly market demand for your chairs is given by the inverse demand function Q P 5 . 0 120 - = where Q is the number of chairs that you can sell when you charge a price of P dollars per chair. You estimate that your total production and marketing costs for producing and selling Q chairs is given by 2 60 100 ) ( Q Q Q C + + = . (a) Write down and simplify the expression for your revenue as a function of Q when you sell Q chairs per year. (b) What are your marginal revenue and marginal cost functions? (c) What is your annual profit function? (d) How many chairs should you sell and what price should you charge to maximize your annual profit? (e) Suppose that your (maximized) annual profit is projected to grow at 3% per year due to growth in demand for your chairs and the market rate of interest is 7% per year. What is the least price that you would accept from a major furniture manufacturing firm, C& K Furniture, that wants to buy out your firm?
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