Question

Pretend that you have a lemonade stand and that the demand for lemonade in your neighborhood is estimated to be: Q

= 75 – 200 P

Just like in the lecture, you get all the materials to make the lemonade for free so we assume that the costs of production are zero. Your goal, your objective, is to maximize profits which is the same as maximizing total revenue given the zero cost assumption.

The profit (revenue) maximizing price is ______ cents. (don’t use a decimal point in this answer!)

The profit maximizing quantity (in cups) of lemonade is _______ .

The corresponding maximum profit is $_______

Suppose that there was a demand shock so that the new estimated demand function for lemonade in your neighborhood changes to:

Q = 140 – 200 P

A demand curve would change like this due to: tax increase/tax decrease

The new profit (revenue) maximizing price is _____ cents. (don’t use a decimal point in this answer!)

The new profit maximizing quantity (in cups) of lemonade is _____.

The new corresponding maximum profit is $______

Imagine that you kept the “sticky” lemonade price even though demand has changed (use the price you found in #12). What is the quantity sold now? ________

Again imagine that you kept the “sticky” lemonade price even though demand has changed (use the price you found in #12). What is the profit now? $___

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