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Calculate Maximum Profit and how competition affects demand curve

College-Cram.com:: Jack Robinson:: Calculate Maximum Profit and how competition affects demand curve
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Description: Solve Managerial Economics homework question on maximum profit with competition
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Contents

  1. The Assigned Homework Problem
  2. Answering the questions
  3. Additional Resources

The Assigned Homework Problem

The Juice Shop sells iced soft drinks. Management has found that demand is described by the equation: Q = 1,000 – 240 P + 80 PC, where:

  • Q denotes the number of drinks sold per day
  • P is the drink's price, and
  • PC is the price of drinks at a nearby café.

a. How many drinks will be sold if P = $1.50 and PC = $1.20?

b. Write down the equation for the firm's demand curve for PC = $1.20.

c. If the other café's price increases to $1.50, what is the effect on Juice Shop's demand curve?

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Answering the questions

a.  Q = 1,000 – 240 P + 80 PC  

    Q = 1,000 – (240 * 1.5) + (80 * 1.20)  

    Q = 1,000 – 360 + 96  

    Q = 736 

 

b. Q = 1,000 – 240 P + 80 PC  

    Q = 1,000 – 240 P + (80 * 1.20)  

    Q = 1,000 – 240 P + 96  

    Q = 1,096 – 240 P 

 

c.  Q = 1,000 – 240 P + (80 * 1.50)  

    Q = 1,000 – 240 P + 120  

    Q = 1,120 – 240 P

    The demand curve shifts upward by 24 drinks per day

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Additional Resources

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