Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 14

The Zenvox Television Company faces a demand function for its products that can be expressed as Q = 4,000 - P + 0.5 I , where Q is the number of televisions, P is the price per television, and I is average monthly income. Average monthly income is currently equal to $2,000. Answer the following questions.
a. Graph the demand curve (sometimes called the "inverse" demand curve) faced by Zenvox at the current income level. Be sure to label this and all graphs you draw carefully. On the same graph, depict marginal revenue. At what price and quantity is Zenvox's total revenue maximized What is the marginal revenue at this point Show the calculation.
b. What is the price elasticity of Zenvox's demand function at the price and quantity derived in part ( a ) Explain what this value means in words.
c. Why might Zenvox choose to produce at a price and quantity different than that derived in part ( a )