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Consider a firm that produces a good at a constant marginal cost of c per unit and that the demand for the product is given by
where p is the price the firm charges, A is its expenditure on advertising and and are positive parameters.
Thus the firm's profit function can be written as
(a) Find the price and advertising expenditure that maximises profit.
(b) Confirm that the second order conditions for a maximum are satisfied at the optimal values of price and advertising expenditure found in part a.
where p is the price the firm charges, A is its expenditure on advertising and and are positive parameters.
Thus the firm's profit function can be written as
(a) Find the price and advertising expenditure that maximises profit.
(b) Confirm that the second order conditions for a maximum are satisfied at the optimal values of price and advertising expenditure found in part a.