Q. Ajax, Inc. is a monopolist. The estimated demand function for its product is
Qd = 120 - 0.8P + 12Y + 4A
Where P represents price, Qd represents quantity demanded, Y represents personal income (in thousands of dollars), and A represents advertising expenditures in hundreds of dollars.
Ajax's marginal cost function is as follows:
MC = 21 + 4Q
Assume Y = 3 and A = 3 and fixed costs = $1000
a. What is the inverse demand function? Consider the equation demand equation in the form P = a - bQd)?
b. What is the profit maximizing price and quantity of output for Ajax, suppose it is an unregulated monopoly? Illustrate its profits?
c. If fixed costs increase to $1200, what will happen to equilibrium price and quantity?