Exercise A.9You are an executive of Super Computer, INC. (SC), which rents supercomputers. SCreceives a fixed rent for a period of time in exchange for the right use unlimitedcomputers equal to P cents per second. SC has two types of potential clients of equalnumbers: 10 companies and 10 academic institutions. Each company has the demandfunction Q = 10 - P, where Q is expressed in millions of seconds per month; each academicinstitution has the demand Q = 8 - P. The marginal cost to SC of additional computerutilization is 2 cents per second, regardless of volume.a) Suppose you can distinguish companies from academic clients. What rental and usagefee would you charge each group? Calculate the profits you would get?b) Suppose that you cannot separate the two types of customers and that you did notcharge a rental fee. What usage quota would maximize your profits? How many benefitswould you get?

The practice of identifying the level of output or activity that generates the largest potential…

Answered: Exercise A.9 You are an executive of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Exercise A.9
You are an executive of Super Computer, INC. (SC), which rents supercomputers. SC
receives a fixed rent for a period of time in exchange for the right use unlimited
computers equal to P cents per second. SC has two types of potential clients of equal
numbers: 10 companies and 10 academic institutions. Each company has the demand
function Q = 10 - P, where Q is expressed in millions of seconds per month; each academic
institution has the demand Q = 8 - P. The marginal cost to SC of additional computer
utilization is 2 cents per second, regardless of volume.
a) Suppose you can distinguish companies from academic clients. What rental and usage
fee would you charge each group? Calculate the profits you would get?
b) Suppose that you cannot separate the two types of customers and that you did not
charge a rental fee. What usage quota would maximize your profits? How many benefits
would you get?

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at point b) - The formula written down when MC is equated with MR is d(P x Q) / dQ. Then in the next step, dQ is cut down and only P is left. Shouldn't dP be left here?

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