The Ali Baba Co.

The Ali Baba Co. is he 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 averabe variable cost function for Ali Baba’s carpet 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 shold the firm produce in order to maximize profit? 

b.  What is the profit-maximizing price of carpets? 

c.  What is the maximum amount of profit that the firm can earn selling carpets? 

d.  Anser parts a through c if consumers’ income per capita is expected to be $30,000 instead.