The Ali Baba Co. is the only supplier of a particular type of Oriental carpet. The estimated demand for its carpets is Q = 112,000 – 500P + 5M Where Q = number of carpets, P = price of carpets (dollars per unit), and M = consumers’ income per capita. The estimated average variable cost function for Ali Baba’s carpets is AVC = 200 – 0.012Q + 0.000002Q2 Consumer’s income per capita is expected to be $20,000 and total fixed cost is $100,0000. a. How many
Q. The Ali Baba Co. is the only supplier of a particular type of Oriental carpet. The estimated
Q = 112,000 – 500P + 5M
Where Q = number of carpets, P =
AVC = 200 – 0.012Q + 0.000002Q2
Consumer’s income per capita is expected to be $20,000 and total fixed cost is $100,0000.
a. How many carpets should the firm produce to maximize profit?
b. What is the profit-maximizing price of carpets?
c. What is the maximum amount of profit that the firm can earn selling carpets?
d. Answer parts a through c if consumers’ income per capita is expected to be $30,000 instead.
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