The Ali Baba Co. is he 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 averabe variable cost function for Ali Baba’s carpet is AVC=200-0.012Q+0.000002
Q2 Consumers income per capita is expected to be $20,000 and total fixed cost is $100,000.
a. How many carpets should the firm produce in order 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.