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Consider now a monopolist who advertises her product Demand Q depends both on the pricec harged and the expenditures on advertising are

Consider now a monopolist who advertises her product.Demand (Q) depends both on the pricec harged (P) and the expenditures on advertising (A):Q = (20-P)(1+0.1.4-0.01.42) Costs are C=(Q,A)=10Q+15+A a.Derive the firm's profit maximizing price and output if it does not advertise. b.Now derive the solution when the firm can simultaneously set both price and advertising.Find the optimal price, output, and advertising level. (Hint: We usually solve for the optimal Q and then find P from the demand curve. It will be easier in this problem if you find P and A first and then use the demand curve to find Q.Set up your profit function so that everything is expressed in terms of P and A.) c.How much additional profit does the monopolist generate as a consequence of being able to advertise?

Apr 30 2020 View more View Less

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