You are the manager of Burger Man - a firm that rents a spot to sell burgers at

Question

You are the manager of Burger Man - a firm that rents a spot to sell burgers at Easy University. Based on estimates provided by a consultant, burger demand (monthly) and cost functions for meals are Q= 2500-250P and C= 500+ 2Q (MC=2), respectively. The cost function excludes rent paid to Easy Univeristy.

(a) Find the firm's inverse demand function.

(b) Write the expression for the firm's marginal revenue. What is the firm's marginal revenue when producing 40 burgers? show work.

(c) what is the level of output (per month) and price when you are maximizing profits? Show work.

(d) How much is your profit (per month) excluding rent?

(e) What is the maximum the firm should be willing to pay for monthly rent? Explain briefly.

Explanation / Answer

250*P=2500-Q (a) P=10-Q/250 Rev= (10-Q/250)*Q (b) MR=10-2/250*Q MR(40)=9.68 (c)MC= 2 so MR=2=10-2/250*Q so 2/250*Q=8 so Q=1000 P=6 (d) Profit= (10-Q/250)*Q-2*Q=6*1000-2*1000=4000 (e)The maximum they can pay is $4000 a month because that is all of their profit

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