ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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11.
Suppose that you develop a software product called "EconSolver" which takes in the parameters
of an economic problem and first determines how to solve it and then solves it. You have two potential
markets for this product: corporations (c) and students (s). The demand schedules you have estimated are:
Price
Dc
10
11
12
13
14
15
16
DS
0
2
4
6
8
10
12
Production, distribution and software support costs are estimated to be $50 per copy for each type of
customer.
300
275
250
225
200
175
150
(i) Assume that you could only charge one price for this product regardless of customer type.
What would that price be and how much profit would you make?
(ii) Assume that you could practice 3rd degree price discrimination in this market. What price
would you charge each customer type and what would your total profits be?
(iii) Use the language of economics to explain why 3rd degree price discrimination works in this
example.
(iv) If you decided to practice 3rd degree price discrimination here, list the practical concerns you
would have to address to make sure that your pricing policies were effective.
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Transcribed Image Text:11. Suppose that you develop a software product called "EconSolver" which takes in the parameters of an economic problem and first determines how to solve it and then solves it. You have two potential markets for this product: corporations (c) and students (s). The demand schedules you have estimated are: Price Dc 10 11 12 13 14 15 16 DS 0 2 4 6 8 10 12 Production, distribution and software support costs are estimated to be $50 per copy for each type of customer. 300 275 250 225 200 175 150 (i) Assume that you could only charge one price for this product regardless of customer type. What would that price be and how much profit would you make? (ii) Assume that you could practice 3rd degree price discrimination in this market. What price would you charge each customer type and what would your total profits be? (iii) Use the language of economics to explain why 3rd degree price discrimination works in this example. (iv) If you decided to practice 3rd degree price discrimination here, list the practical concerns you would have to address to make sure that your pricing policies were effective.
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