# Answer on Economics of Enterprise Question for Eric

Question #26599

5. A small firm traps rabbits for their fur and feet. Each rabbit yields one pelt and two feet (only the hind feet are suitable for the "lucky rabbit's feet"). The demand for pelts is:

PP = 2.00 - 0.001QP

and the demand for rabbit's feet is given by:

PF = 1.60 - 0.001QF

The marginal cost of trapping and processing each rabbit is $0.60.

a. What are the profit-maximizing prices and quantities of pelts and rabbit's feet?

b. If the demand for rabbit's feet is PF = 1.00 - 0.001QF, how do your answers change? Explain.

PP = 2.00 - 0.001QP

and the demand for rabbit's feet is given by:

PF = 1.60 - 0.001QF

The marginal cost of trapping and processing each rabbit is $0.60.

a. What are the profit-maximizing prices and quantities of pelts and rabbit's feet?

b. If the demand for rabbit's feet is PF = 1.00 - 0.001QF, how do your answers change? Explain.

Expert's answer

a. What are the profit-maximizing prices and quantities of pelts and rabbit's feet?

QP = 2000 - 1000PP,

QF = 1600 - 1000PF,

In equilibrium QP = QF,

2000(PP + PF) = 3600

PP + PF = 1.8 = MR = MC = P - is the equilibrium price of the whole rabbit Q = 1.8/0.6 = 3 rabbits can be processed - it is the

equilibrium quantity.

b. If the demand for rabbit's feet is PF = 1.00 -0.001QF, how do your answers change? Explain.

QF = 1000 - 1000PF

Now we repeat our calculations from the answer for question a.

In equilibrium QP = QF,

2000(PP + PF) = 3000

PP + PF = 1.5 = MR = MC is our new equilibrium price.

Q = 1.5/0.6 = 2.5 is our new equilibrium quantity.

QP = 2000 - 1000PP,

QF = 1600 - 1000PF,

In equilibrium QP = QF,

2000(PP + PF) = 3600

PP + PF = 1.8 = MR = MC = P - is the equilibrium price of the whole rabbit Q = 1.8/0.6 = 3 rabbits can be processed - it is the

equilibrium quantity.

b. If the demand for rabbit's feet is PF = 1.00 -0.001QF, how do your answers change? Explain.

QF = 1000 - 1000PF

Now we repeat our calculations from the answer for question a.

In equilibrium QP = QF,

2000(PP + PF) = 3000

PP + PF = 1.5 = MR = MC is our new equilibrium price.

Q = 1.5/0.6 = 2.5 is our new equilibrium quantity.

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