Nebraska Furniture Mart (NFM) is having a Labor Day sale for their goods in the Houston. They operate in a monopolistic competition market. NFM hires an economic consultant to estimate the price for their Book Shelves and how many to order. The consultant estimates the demand function as follows:
P = 925 – 6 Q
Where P = Price of Book Shelves and Q = number of Book Shelves sold per month
The consultant further estimates the Total Cubic Cost function as
TC = 25,000 + 25 Q – 6 Q2+ 1/3Q3
Given these equations,
(a) Determine the price and output of Book Shelves which NFM should sell which will maximize profits in the short-run
(b) How much NFM will earn in profits at this price and output rate?
(c) Suppose there is a rise in the rent of NFM stores rise by 10%. Calculate the impact upon the firm’s price, output and profits. Provide an explanation to your answers.
(d) What strategies can NFM pursue to increase sales and profits besides raising the price? Discuss some business strategies, using examples.
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