As the marginal expense of manufacturing is more than the marginal income, it is not feasible for the company to manufacture a positive amount of output although it has got monopoly power by the patent.
During the 1st year, the company has incurred the fixed expense of 120 that it can 't do anything about. But, in the following years the company would go out this market and consequently prevent the fixed expenses incurred. Therefore, the company then would earn profits equal to zero.
2. Greener Grass Company (GGC) competes with its major competitor, Better Lawns and Gardens (BLG), in the delivery and installing of in-ground lawn watering systems in the prosperous western suburbs of a main east-coast town. Previous year, GGC’s price for the standard lawn system was $1,995 compared with BLG’s rate of $2,100. GGC set up 9,130 systems, or roughly 55% of total sales and BLG set up the remaining. (No doubt, several additional systems were set up by do-it-yourself householders because the components are easily available at hardware shops.) GGC has significant additional capacity-it could easily set up 25,000 systems yearly, because it has all the necessary machines and can easily employ and teach installers. As a result, GGC is thinking about growth into the eastern suburbs, in which the people are less prosperous. In earlier years, both GGC and BLG have set up many hundred systems in the eastern suburbs however typically their sales attempts are met with the reaction that the systems are very costly. GGC has employed you to propose a pricing method for both the western and eastern suburb markets for this coming season. You have approximated two distinct demand functions, as follows:
Qw=1,035.548 - 6.07164Pgw + 2.83Pbw + 2,100Ag - 1,500Ab + 0.2348Yw for the western market and
Qe=49,714.29 - 30.7692Pge + 6.984Pbe + 1,180Ag - 950Ab + 0.0825Ye
For the eastern market, where Q