Please, complete the following 2 applied problems in a Word document. Show all your calculations and explain your results.
(ii)What profit do you expect that the firm will make in the first year?
(iii)Do you expect this profit level to continue in subsequent years? Why or why not?
for the western market and
Qe =49,714.29– 30.7692Pge+6.984Pbe+1,180Ag–950Ab+0.0825Ye
for the eastern market, where Q refers to the number of units sold; P refers to price level; A refers to advertising budgets of the firms (in millions); Y refers to average disposable income levels of the potential customers; the subscripts w and e refer to the western and eastern markets, respectively; and the subscripts g and b refer to GGC and BLG, respectively. GGC expects to spend $1.5 million on advertising this coming year and expects BLG to spend $1.2 million on advertising. The average household disposable income is $55,000 in the western suburbs and $25,000 in the eastern suburbs. GGC does not expect BLG to change its price from last year, since it has already distributed its glossy brochures (with the $2,100 price stated) in both suburbs, and its TV commercial has already been produced. GGCs cost structure has been estimated as TVC= 755.363Q+ 0.005Q2where Q represents single lawn watering systems.
a.Derive the demand curves for GGCs product in each market.
b.Plot graphically the demand and MR curves for each market, and also show GGCs combined marginal revenue curve (MR) and its MC curve. Show graphically the quantities that should be produced and sold, and the prices that should be charged, in each market.
c.Confirm your quantity and price results algebraically.
d.Calculate the price elasticities of demand in each market and discuss these in relation to the prices to be charged in each market.
e.Add a short note to GGC management outlining any reservations and qualifications you may have concerning your price recommendations.
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