The Ali Baba Co. is the only supplier of a particular type of Oriental carpet. T

Question

The Ali Baba Co. is the only supplier of a particular type of Oriental carpet. The estimated demand for its carpets is Q = 112,000 – 500P + 5M where Q = number of carpets, P = price of carpets (dollars per unit), and M = consumers’ income per capita. The estimated average variable cost function for Ali Baba’s carpets is AVC = 200 – 0.012Q + 0.000002Q2 Consumers’ income per capita is expected to be $20,000 and total fixed cost is $100,000. a. How many carpets should the firm produce in order to maximize profit? b. What is the profit-maximizing price of carpets? 504 c. What is the maximum amount of profit that the firm can earn selling carpets? d. Answer parts a through c if consumers’ income per capita is expected to be $30,000 instead.

Explanation / Answer

Because when per capita income is 500 $ company producing 112 carpet.So when percapita income increase 20,000$ it is four time greater so production should also increase four time greater=112X4=448

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