02 May Question: 6. Exercise 10.8 The Poster Bed Company believes that its industry can best be classified as mono…
6. Exercise 10.8
The Poster Bed Company believes that its industry can best be classified as monopolistically competitive. An analysis of the demand for its canopy bed has resulted in the following estimated demand function for the bed:
P=1,265−9QP=1,265−9Q
The cost analysis department has estimated the total cost function for the poster bed as
TC=Q33−15Q2+5Q+24,000TC=Q33−15Q2+5Q+24,000
Short-run profits are maximized when the level of output is
and the price is
.The total profit at this price-output level is
.
The point price elasticity of demand at the profit-maximizing level of output is .
The level of fixed costs the firm is experiencing on its bed production is
.
What is the impact of a $5,000 increase in the level of fixed costs on the price charged, output produced, and profit generated?
| Increase | No change | Decrease | ||
|---|---|---|---|---|
| Price Charged | ||||
| Output Produced | ||||
| Profits Generated |
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