The Blue Dragon Restaurant is a new Chinese Restaurant in town. As the only Chin

Question

The Blue Dragon Restaurant is a new Chinese Restaurant in town. As the only Chinese restaurant in the area, it faces the following daily demand curve:

Q = 800 - 40 P

where Q is the number of meals it serves per day and P is the average price of its meals. The cost functions of the restaurant have been estimated as follows:

TC = 220 + 6Q + .02 Q2
MC = 6 + .04 Q
ATC = 220/Q +6 + .02Q ; Slope = -220/Q2 +.02

As a result of the success of the Blue Dragon other Chinese restaurants start appearing in the area. As the Blue Dragon's customers gradually start trying other (new) Chinese restaurants, its demand curve gets flatter (more elastic) and shifts to the left. In reaction, The Blue Dragon lowers its price and adjust its output to the point that, eventually, its (economic) profit disappears; It becomes equal to zero. At that point the slope of its demand curve becomes -0.02.

a. Determine the new (equilibrium) average price The Blue Dragon charges for its meals.

b. Write the equation for this new (zero profit) demand curve.

Please label each part of the question in your response and I will thumbs up! (a + b) Thanks again!

Explanation / Answer

P = (800 - Q)/40

TR = Q[(800 - Q)/40] = 20Q - Q2/40

TC = 220 + 6Q + 0.02 Q2

Profit = 20Q - Q2/40 - 220 - 6Q - 0.02 Q2 = 0

or, Q = 294.44

a. P = 12.64

b. Q = 800 - 40*(12.64)

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