Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / PRACTICE PROBLEM 9

PRACTICE PROBLEM 9

Economics

PRACTICE PROBLEM 9.5 Suppose that demand is either strong (with probability one-half) and described by Q=(10-p)100, or weak (with probability one-half) and described by Q = (10-p) 30. To simplify further, assume that the manufacturer's unit cost is constant at c = 0. a. Show that the revenue-maximizing price is $5 regardless of whether demand is weak or strong. b. Assume that the firm produces 500 units prior to learning the strength of de mand. How much of this will it sell when demand is strong? How much will it sell when demand is weak? What is the firm's expected profit? c. Suppose now that the firm sells the 500 units through a competitive retail sector. If retailers buy and stock the entire 500 units, what will be the retail price when demand is strong? What will be the retail price when demand is weak? d. In light of your answer to c, what wholesale price will induce the retailers to pur- chase initially an inventory of 500? What will be the manufacturer's profit at this price?

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE