Question: T-Galaxy has market power in the market for the University of Missouri Big XII championship 2007 T-shirts. The demand curve for T-Galaxy’s product is: Q_D = 10 -0.4P → P = 25 – 2.5Q_D. The resulting marginal revenue curve is MR (Q) = 25-5Q. T-Galaxy’s marginal costs are MC (Q) = 3 + 6Q.

a. Determine T-Galaxy’s profit maximizing price. (3 points)

b. Calculate T-Galaxy’s elasticity of demand at this price. (3 points)

c. What is T-Galaxy’s mark-up over marginal cost as a percentage of price? (3 points)