Determining the monopolist profit

Reference no: EM1316122

A monopolist faces an inverse demand curve given by P = 22 - Q/100Z. Where Z is index of quality. The monopolist incurs a cost per unit of C = 2 + Z².

a. How do increases in product quality z affect demand?

b. Imagine that the firm must choose one of three quality levels: z = 1; z=2; and z = 3. Which quality choice will maximize the firm's profit? What profit-maximizing out and price are associated with this profit maximizing quality level?

Reference no: EM1316122

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