The Ali Baba Co. is the only supplier

The Ali Baba Co. is the only supplier

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 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.


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