An analyst for FoodMax estimates that the demand for its "Brand X" potato chips is given by: InQx = 12.45 - 3.3 In Px+3.9Py+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 $0.35 million on advertising. Its plant lease is $2.5 million (this annual contract includes utilities) and its depreciation charge for capital equipment was $2.9 million; payments to employees (all of whom earn annual salaries) were $0.9 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 $2.6 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).
An analyst for FoodMax estimates that the demand for its "Brand X" potato chips is given by: InQx = 12.45 - 3.3 In Px+3.9Py+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 $0.35 million on advertising. Its plant lease is $2.5 million (this annual contract includes utilities) and its depreciation charge for capital equipment was $2.9 million; payments to employees (all of whom earn annual salaries) were $0.9 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 $2.6 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).
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter14: Indirect Price Discrimination
Section: Chapter Questions
Problem 7MC
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Transcribed Image Text:An analyst for FoodMax estimates that the demand for its "Brand X" potato chips is given by:
Inoxd = 12.45 - 3.3 In Px+ 3.9Py+ 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 Axis FoodMax's level of advertising on brand X potato chips.
Last year, FoodMax sold 5 million bags of Brand X chips and spent $0.35 million on advertising. Its plant lease is $2.5 million (this
annual contract includes utilities) and its depreciation charge for capital equipment was $2.9 million; payments to employees (all of
whom earn annual salaries) were $0.9 million. The only other costs associated with manufacturing and distributing Brand X chips are
the costs of raw potatoes, peanut oll, and bags; last year FoodMax spent $2.6 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).
24
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