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- The Potomac Range Corporation manufactures a line of microwave ovens costing $500 each. Its sales have averaged about 6,000 units per month during the past year. In August, Potomacs closest competitor, Spring City Stove Works, cut its price for a closely competitive model from $600 to $450. Potomac noticed that its sales volume declined to 4,500 units per month after Spring City announced its price cut. What is the arc cross elasticity of demand between Potomacs oven and the competitive Spring City model? Would you say that these two firms are very dose competitors? What other factors could have influenced the observed relationship? If Potomac knows that the arc price elasticity of demand for its ovens is 3.0, what price would Potomac have to charge to sell the same number of units it did before the Spring City price cut?Tim's Tires sells tires under the firm's own brand name and private label tires to discount stores. The tires sold in both sub- markets are identical, and the marginal cost is constant at $15 per tire for both types. The firm has estimated the following demand curves for each of the markets: PB = = 70 -0.0005QB (brand name) Pp = 20 -0.0002Qp (private label). Quantities are measured in thousands per month and price refers to the wholesale price. By selling the brand name and private label tires at different prices, the firm is using discrimination. With price discrimination, the optimal price of brand name tires is ✓. The optimal price of private label tires is ✓. The firm's TOTAL profit is ✓to prices. ✓price ✓and the optimal quantity is ✓and the optimal quantity is ✓ (assume fixed costs are zero). If the firm cannot price discriminate and must charge a single price in the market, the optimal price is and the optimal quantity is ✓. The firm's total profit in this case is approximately…A market analysis employed by the “Sad Student Company” reveals that the number oflots of the game named “Handsome Killer: Revenge of the Teacher” ordered by thewholesalers when the game is offered at a price of dollars per lot is given by the formula:p=1500-2.5qa) Find the company’s total, marginal and average revenues b) Find the price and quantity maximizing the total revenue by first expressing therevenue as a function of price rather than of quantity
- The demand function for Cheap Chips Corp. device model FZG194 is given by d(q) = 220.5-0.2q² while the corresponding supply function is given by s(q) = 0.3q² Find the equilibrium quantity: Find the equilibrium price: $ Find the consumers surplus at the equilibrium quantity:Vijay Dairy is selling flavored milk and buttermilk in packets of 150 ml. The dairysells 2000 packets of flavored milk and 1000 packets of buttermilk every day. Theformer is priced at Rs 6 and the latter is at Rs 4. A market survey estimates the crossprice elasticity (both ways) to be + 1.8 and the own price elasticity of flavored milk tobe -1.3. The dairy is contemplating a 10 per cent reduction in the price of flavoredmilk. Should it go ahead with price reduction? Why are why not? Show all theworkingSuppose that BMW can produce any quantity of cars at a constant marginal cost equal to$50 and a fixed cost of $22,500. You are asked to advise the CEO as to what prices andquantities BMW should set for sales in Europe and in the United States to maximize its profits.The demand for BMWs in each market is given by:QE = 8,000 – 80PE and QU = 4,000 – 20 PU,where the subscript E denotes Europe, the subscript U denotes the United States. Assume thatBMW can restrict U.S. sales to authorized BMW dealers only. Support your answersgraphically as well.a. If, by an international agreement between Europe and United States, BMW wereforced to charge the same price in each market, what would be the quantity sold in eachmarket, the equilibrium price, and the company’s profit?b. Suppose now that Europe and United States signed a new trade package under whichBMW now can charge different prices across the two markets. What quantity of BMWsshould the firm sell in each market, and what should the price be…
- Ivan runs a small independent movie theatre in Scarborough, which presently attracts 1,100 customers per week at a ticket price of $7. His customer base comprises 750 adult customers and 350 seniors. He would like to increase his total revenue by practising price discrimination. He knows that the demand by adults is fairly inelastic and that a change in the admission price of $1 would change the quantity by 60 customers. He also recognizes that the demand by seniors is fairly elastic and a $1 change in the price would result in a change of 40 customers. Adults Seniors Price Quantity Total Revenue Quantity Total Revenue $2 $ $ 3 4 5 6 7 8 9 a. From this information, complete the table above. b. What is Ivan’s present total revenue? Total revenue: $ c. Should he increase or decrease the price for adults? Should he increase or decrease the price for seniors?…Consider two internet service providers: ISP West and ISP East, offering internet access to a small town in north Kansas. They both have some estimations of the price elasticity of the demand facing them: Estimated Price Elasticity for ISP West: -1.25 Estimated Price Elasticity for ISP East:-1.125 They also have some estimations of their marginal cost, as defined by the monthly cost of adding one new unit (e.g., house, office, etc.) to their internet service network: Estimated Marginal Cost for ISP West: $23 Estimated Marginal Cost for ISP East: $30 Assuming that ISP West and ISP East engage in a Cournot duopoly, the profit maximizing price for ISP West is _____ dollars.Tim's Tires sells tires under the firm's own brand name and private label tires to discount stores. The tires sold in both sub-markets are identical, and the marginal cost is constant at $15 per tire for both types. The firm has estimated the following demand curves for each of the markets: PB = 70 - 0.0005QB (brand name) PP = 20 - 0.0002QP (private label). Quantities are measured in thousands per month and price refers to the wholesale price. a) By selling the brand name and private label tires at different prices, is the firm is using first, second, or third degree price discrimination? b) With price discrimination, the firm's TOTAL profit is _______________ (assume fixed costs are zero). c) If the firm cannot price discriminate and must charge a single price in the market, the optimal price is and the optimal quantity is ________________. The firm's total profit in this case is approximately ________________(again, assume fixed costs are zero). d) When price discriminating, the…
- An analyst for FoodMax estimates that the demand for its "Brand X" potato chips is given by: Inoxd = 12.45 - 3.3 In Px+ 3.9Py+ 1.5 In Ax where Qx and Px are the respective quantity and price of a four-ounce bag of Brand X potato chips, Pyis the price of a six-ounce bag sold by its only competitor, and Axis FoodMax's level of advertising on brand X potato chips. Last year, FoodMax sold 5 million bags of Brand X chips and spent $0.35 million on advertising. Its plant lease is $2.5 million (this annual contract includes utilities) and its depreciation charge for capital equipment was $2.9 million; payments to employees (all of whom earn annual salaries) were $0.9 million. The only other costs associated with manufacturing and distributing Brand X chips are the costs of raw potatoes, peanut oll, and bags; last year FoodMax spent $2.6 million on these items, which were purchased in competitive input markets. Based on this information, what is the profit-maximizing price for a bag of Brand X…You would like to control the total consumption of soft drink up to 100 bottles per year. The current two brands you drink are Pepsi and Coke. The current demand, price, elasticity, and minimum demand for Pepsi and Coke are given in below. In addition, you would like to keep equal or more demand from Pepsi due to brand loyalty. Assuming linear demand curves, what are the best price for Pepsi and Coke that can minimize your total payment? Elasticity Current price Demand Minimum demand Keep Pepsi income > = 60% of total payment Pepsi 2 2 300 20 Coke 1 3.5 220 25The Saad Enterprises manufactures cameras, Speakers and sells on average 21300 units monthly at $ 177 each to retail stores. Its closest competitor produces a similar type of Camera that sells for $198. If the demand for Saad’s product has an elasticity coefficient of −3.7, how many will it sell per month if the price is lowered to $156? 2. The competitor decreases its price to $170. If cross-price elasticity between the two speakers is 0.4, what will Saad’s monthly sales be?