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EC 315: Review Problems
David Wong
February 22, 2009
(1) You are the ownermanager 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
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This note was uploaded on 04/15/2009 for the course ECON ECON 315 taught by Professor Wong during the Spring '09 term at CSU Fullerton.
 Spring '09
 Wong
 Economics

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