How many homes should be built in a new residential area. The firm has some monopoly power in its local market. Its demand is estimated to be Q = 10 - 1/6 P
Its cost function is C = 70 + 8Q + 1/2 Q2 (Price is in tens of thousands, quantity is in units.)
a. What is the revenue-maximizing price and quantity? Explain.
b. What is the profit-maximizing price and quantity? Explain.
c. Can you recommend any pricing strategy that would further improve profit beyond the profit-maximizing level? Explain such strategy and its implementation.