The individual demand for a slice of pizza at Sam’s Pizza is given by QD = 6 – P. Assume the marginal cost of a slice is constant at $1.00 and the marginal revenue (MR) function is 6 – 2Q.
a. What is the profit-maximizing price and quantity if Sam’s sells all slices at a single price? What profit per customer will be earned?
b. Suppose that Sam’s decides to sell pizza at cost and charge a fixed price for this option. What quantity will a customer demand at the market price? What is the maximum fixed price Sam’s can charge for this option?
What are the three tools the Federal Reserve uses to change the money supply and interest rates in the economy? Which of these tools is most important and why?
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