An analyst for FoodMax estimates that the demand for its "Brand X" potato chips is given by: InQx = 10.34 – 3.2 In Px+ 4Py+ 1.5 In Ax where Qx and Px are the respective quantity and price of a four-ounce bag of Brand X potato chips, Pyis the price of a six-ounce bag sold by its only competitor, and Ax is FoodMax's level of advertising on brand X potato chips. Last year, FoodMax sold 5 million bags of Brand X chips and spent $0.25 million on advertising. Its plant lease is $2.5 million (this annual contract includes utilities) and its depreciation charge for capital equipment was $2.5 million; payments to employees (all of whom earn annual salaries) were $0.5 million. The only other costs associated with manufacturing and distributing Brand X chips are the costs of raw potatoes, peanut oil, and bags; last year FoodMax spent $2.5 million on these items, which were purchased in competitive input markets. Based on this information, what is the profit-maximizing price for a bag of Brand X potato chips? Instructions: Enter your response rounded to the nearest penny (two decimal places). 2$
An analyst for FoodMax estimates that the demand for its "Brand X" potato chips is given by: InQx = 10.34 – 3.2 In Px+ 4Py+ 1.5 In Ax where Qx and Px are the respective quantity and price of a four-ounce bag of Brand X potato chips, Pyis the price of a six-ounce bag sold by its only competitor, and Ax is FoodMax's level of advertising on brand X potato chips. Last year, FoodMax sold 5 million bags of Brand X chips and spent $0.25 million on advertising. Its plant lease is $2.5 million (this annual contract includes utilities) and its depreciation charge for capital equipment was $2.5 million; payments to employees (all of whom earn annual salaries) were $0.5 million. The only other costs associated with manufacturing and distributing Brand X chips are the costs of raw potatoes, peanut oil, and bags; last year FoodMax spent $2.5 million on these items, which were purchased in competitive input markets. Based on this information, what is the profit-maximizing price for a bag of Brand X potato chips? Instructions: Enter your response rounded to the nearest penny (two decimal places). 2$
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter23: Price-searcher Markets With Low Entry Barriers
Section: Chapter Questions
Problem 17CQ
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Transcribed Image Text:An analyst for FoodMax estimates that the demand for its “Brand X" potato chips is given by:
InQx = 10.34 – 3.2 In Px+ 4Py+ 1.5 In Ax
where Qx and Px are the respective quantity and price of a four-ounce bag of Brand X potato chips, Pyis the price of a six-ounce bag
sold by its only competitor, and Ax is FoodMax's level of advertising on brand X potato chips.
Last year, FoodMax sold 5 million bags of Brand X chips and spent $0.25 million on advertising. Its plant lease is $2.5 million (this
annual contract includes utilities) and its depreciation charge for capital equipment was $2.5 million; payments to employees (all of
whom earn annual salaries) were $0.5 million. The only other costs associated with manufacturing and distributing Brand X chips are
the costs of raw potatoes, peanut oil, and bags; last year FoodMax spent $2.5 million on these items, which were purchased in
competitive input markets.
Based on this information, what is the profit-maximizing price for a bag of Brand X potato chips?
Instructions: Enter your response rounded to the nearest penny (two decimal places).
2$
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