Question

wered [6 points] A real-estate firm owns 100 apartments. At 400 OMR per month, each apartment can be rented. However, for each 5 OMR per-month-increase, there will be one vacancies with no possibility of filling them. What rent per apartment will maximize monthly revenue?. of Maximum size for new files: 50MB estion Files You can drag and drop files here to add them. [6 points]

Answer 1

Demand function: Q = a - bQ

When P = 400, Q = 100

When P = 405, Q = 99

So,

400 = a - 100b...........(1)

405 = a - 99b.............(2)

(2) - (1) yields:

b = 5

a = 400 + 100b [from (1)] = 400 + 500 = 900

Demand: P = 900 - 5Q

TR = PQ = 900Q - 5Q2

MR = dTR/dQ = 900 - 10Q

TR is maximized when MR = 0

900 - 10Q = 0

Q = 900/10 = 90

P = 900 - 5 x 90 = 900 - 450 = 450