solution

The Madison Corporation, a monopolist, receives a report from a consulting

firm concluding that the demand function for its product is Q = 78 – 1.1P + 2.3Y + 0.9A

where Q is the number of units sold, P is the price of its product (in dollars),

Y is per capita income (in thousands of dollars), and A is the firm’s advertisingexpenditure (in thousands of dollars). The firm’s average variable cost function is AVC = 42 – 8Q + 1.5Q2

where AVC is average variable cost (in dollars). a. Can we determine the firm’s marginal cost curve?

b. Can we determine the firm’s marginal revenue curve? c. If per capita income is $4,000 and advertising expenditure is $200,000, can we determine the price and output where marginal revenue equals marginal cost? If so, what are they?