e) Economic profit = (18,400 – 11,499)/0.97 = £7,114He should enter the business since this is positive5. Valley produce

[answerhappygod]

e) Economic profit = (18,400 – 11,499)/0.97 = £7,114He shouldenter the business since this is positive5. Valley producesbicycles, and is currently selling 260 per month of a particularmodel. Itstotal costs are £90,000 per month. It is currentlycharging a price of £500, but this hasrecently been reduced from£560, because sales were only reaching 225 units per month.Theincrease in sales has also increased costs by £10,500 per month.The firm hasestimated that it has a linear total cost function andthat its price elasticity of demand isconstant.a) Calculate theprice elasticity of demand at the current price.b) Derive thedemand and cost functions for the firm.c) Calculate the optimalmarkup for the firm, and its profit-maximizing price and output.d)Calculate the amount of profit that the firm is currentlyforegoing.e) Comment on the firm’s current pricing strategy