Answered: An analyst for FoodMax estimates that…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter3: Demand Analysis

Section: Chapter Questions

Problem 7E: In an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price...

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Transcribed Image Text:An analyst for FoodMax estimates that the demand for its "Brand X" potato chips is given by: InQXd 12.61-2.9 In PX + 3.6PY + 0.8 In AX where QX and PX are the respective quantity and price of a four-ounce bag of Brand X potato chips, PY is the price of a six-ounce bag sold by its only competitor, and AX is FoodMax's level of advertising on brand X potato chips. Last year, FoodMax sold 7 million bags of Brand X chips and spent 50.41 million on advertising. Its plant lease is $2.2 million (this annual contract includes utilities) and its depreciation charge for capital equipment was $2.8 million; payments to employees (all of whom earn annual salaries) were $0.7 million. The only other costs associated with manufacturing and distributing Brand X chips are the costs of raw potatoes, peanut oil, and bags; last year FoodMax spent $3.5 million on these items, which were purchased in competitive input markets. Based on this information, what is the profit-maximizing price for a bag of Brand X potato chips? Instructions: Enter your response rounded to the nearest penny (two decimal places). S

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