Your Family Operates Voltaire's Pizza, Which Ships Frozen Hand-Made Pizzas

Essay

Your family operates Voltaire's Pizza, which ships frozen hand-made pizzas by over-night delivery to homes within 500 miles of your city. You are asked to determine the optimal monthly advertising expenditures for the business. The total monthly cost of pizza production is TC = 4Q + 0.0005Q² + A where A is the advertising expenditure. The firm's marginal revenue from advertising is constant at MRA = $3, and the advertising elasticity of demand is 0.3.
a. What is the firm's marginal cost of production (MC)? What is the firm's full marginal cost of advertising (as a function of Q and
A)?
b. Suppose you know the profit maximizing level of output is Q = 9,000 pizzas per month. What is the firm's optimal level of advertising expenditure?