Question

B. Suppose, as in exercise 10.10, tastes for your consumers can be modeled by the utility function 0.5 u(x1 , X2) = 10과, + x2, where x-x represents amusement park rides and x2 represents dollars of other consumption. Suppose further that your marginal cost function is given by MC(x)-x (250,000). a. Suppose that you have 10,000 consumers on any given day. Calculate the (aggregate) demand function for amusement park rides. What price would you charge if your goal was to maximize total surplus? How many rides would be consumed? b. c. In the absence of fixed costs, what would your profit be at that price? Suppose you charged a price that was 25% higher. What would happen to your profit? Derive the expenditure function for your consumers. e.

Answer 1

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