Yuen, a travelling salesman for snake oil, can produce the stuff at a marginal cost of 1. There are 100 potential customers in Vernon, each of whom has the following demand function for snake oil: P = 2 - y. The trouble is that none of the customers have any idea that Yuen is in town. The solution to his problem is, of course, advertising. The local radio station has explained to Yuen that their research shows that the probability that his message gets through to any one of the customers is [1 - 1/(1+A)], where A is the amount he spends on radio advertising.

a. What is Yuen's profit function?

Total demand:

Qd= y*100 = (2-P)*100=200-100P

P= (200-Qd)/100 = 2-.01Qd

revenues= Qd*P = [2 -.01Qd] *Qd

costs = TVC + ad costs = 1*Qd + A

b. What are the profit maximizing values of P and A?

 

 

Posted Date: 8/2/2013 3:19:07 AM | Location : United States

Ask an Expert

Related Discussions:- What is yuen’s profit function, Assignment Help, Ask Question on What is yuen’s profit function, Get Answer, Expert's Help, What is yuen’s profit function Discussions

Write discussion on What is yuen’s profit function
Your posts are moderated

Write your message here..

Related Questions

Law of diminishing marginal utility, law of diminishing marginal utility it... law of diminishing marginal utility its assumptions, limitation, and its practical importance

Micro, The prevention of major swings in economic activity can be handled m... The prevention of major swings in economic activity can be handled most easily by the

Macroeconomics question, In June 2009, Textile co. (a domestically located ... In June 2009, Textile co. (a domestically located firm) purchased 1000 yards of cloth from India (a foreign country) for $1000. Textile co. hired Elizabeth and paid her $5000 to s

Financial relationship with the imf, Financial relationship with the IMF: ... Financial relationship with the IMF: IMF provides temporary assistance to member countries to tide over BOP deficits. When a country requires foreign exchange, its tenders its

Income and substitution effects: normal good, Income and Substitution Effec... Income and Substitution Effects: Normal Good *  The Special Case--The Giffen Good - The income effect may be large enough theoretically to cause the demand c

What is free trade agreements, Q. What is Free Trade Agreements? Free T... Q. What is Free Trade Agreements? Free Trade Agreements:It is an agreement between two or more countriesthat eliminates tariffs on trade between the countries, reduces non-tari

Oligopoly, characteristics and models of oligopoly by Sweezy,cournot and ed... characteristics and models of oligopoly by Sweezy,cournot and edgework

Estimating Industry Demand for Fresh Market Carrots, this is a project I ne... this is a project I need help answering the questions

Curvature of the iso-quant, Curvature of the Iso-quant: An iso-qunat i... Curvature of the Iso-quant: An iso-qunat is convex to the origin. This is so because as more and more units labour are employed, the producer would prefer to give up less and

Free market, what is free market? what is free market?