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Determine the store optimal quantity and output

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"Amalgamated Popcorn, Inc. sells bags of flavored gourmet popcorn in a popular mall. As shop owner and operator, you have observed that weekly popcorn sales are well-described by the demand equation: Q = 1,200 - 800P + 2.0A, where A denotes advertising weekly spending (in dollars). You are currently charging $1.50 per bag of popcorn (for which the marginal cost is $.75) and spending $500 per week on advertising."

b) Check whether your current $1.50 price is profit maximizing. If not, determine the store's optimal quantity and output. Why:

The answer states that 'According to the markup rule, (P - MC)/P = -1/EP. At P = $1.50, the percentage markup on the left side of this equation is: (1.50 - .50)/1.50 = .667 or 66.7%. The problem states that MC = .75. How was a value of .5 for MC obtained?

Reference no: EM131257470

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