Final answer:
a. To formulate the demand curve function for pizza, we need to express the price as a function of quantity. The quantity demanded for pizza is 7500.
b. The total revenue is the highest at the current price of $35, so the firm should continue selling the pizzas at this price.
Step-by-step explanation:
a. To formulate the demand curve function for pizza, we need to express the price as a function of quantity.
We have the demand function as Qx = 4000 - 1000Px + 25Y, where Qx represents the quantity demanded, Px is the price of pizza (given as $35), and Y is the average consumer's income (given as $1500).
To calculate the quantity demanded for pizza, we substitute the given values into the demand function:
Qx = 4000 - 1000 * 35 + 25 * 1500
Qx = 4000 - 35000 + 37500
Qx = 42500 - 35000
Qx = 7500
So, the quantity demanded for pizza is 7500.
b. To compute the difference in total revenue at the current price ($35) and $20.75, we need to calculate the revenue at each price and subtract them.
The total revenue at a given price can be calculated by multiplying the quantity demanded by the price.
Let's calculate the total revenue at the current price:
Total revenue at $35 = 7500 * 35 = $262,500
Now, let's calculate the total revenue at $20.75:
Total revenue at $20.75 = 7500 * 20.75 = $155,625
The difference in total revenue is $262,500 - $155,625 = $106,875.
To determine the price at which total revenue is the highest, we need to compare the total revenues at different prices and choose the one with the highest value.
From our calculations, we can see that the total revenue is the highest at the current price of $35.
Therefore, the firm should continue selling the pizzas at the current price of $35.