Question: The Madison Corporation, a monopolist, receives a report from a consulting firm concluding that the demand function for its product is:

Q = 78 – 1.1P + 2.3Y + 0.9A

Where Q is the number of units sold, P is the price of its product (in dollars), Y is per capita income (in thousands of dollars), and A is the firm’s advertising expenditure (in thousands of dollars). The firm’s average variable cost function is:

AVC = 42 – 8Q + 1.5Q ²

where AVC is average variable cost (in dollars).

1. What is the firm’s marginal cost curve?
2. What is the marginal revenue curve?
   
3. Given Y = 4 and A = 200 what quantity of production will maximize profit?

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