Q T = 100 – 80P T + 0.9Y + 20P c Where P T is the price charged by Caribbean Sun Towel Limited, Y

QT = 100 – 80PT+ 0.9Y + 20Pc

Where PT is the price charged by Caribbean Sun Towel Limited, Yis the income per

capita and Pc is the price of towels from other manufacturers. The values for PT, Yand

Pc are $100, $25,000 and $120, respectively.

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3. (continued)

a) Determine what effect a price increase will have on total revenue[02 MARKS]

b) What is the revenue implication if there is a boom? [02 MARKS]

c) Should Caribbean Sun Towel Limited be concerned about its competitor? [02 MARKS]

d) What is the price and quantity at the revenue maximizing level?[02 MARKS]

e) What is the profit maximizing price at the profit maximizing level, if MC = 20Q?[02 MARKS]

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