You are the manager of a firm that charges customers $16 per unit for the first unit purchased, and $12 per unit for each additional unit purchased in excess of one unit. The accompanying graph summarizes your relevant demand and costs. a. What is the economic term for your firm’s pricing strategy? multiple choiceThird degree price discriminationFourth degree price discriminationFirst degree price discriminationSecond degree price discriminationb. Determine the profits you earn from this strategy. $ c. How much additional profit would you earn if you were able to perfectly price discriminate?Instructions: In solving this problem, assume the firm cannot sell fractions of a unit. $ The image is a graph illustrating the relationships between price and quantity. The graph is plotted on a grid with 'Price' on the vertical y-axis and 'Quantity' on the horizontal x-axis.1. **Axes and Labels**: - The y-axis (Price) ranges from 0 to 20. - The x-axis (Quantity) ranges from 0 to 7.2. **Lines on the Graph**: - The green line represents market demand (D) and has a downward slope, starting at a price of 18 when the quantity is 0 (the y-intercept) and decreasing steadily as quantity increases. - The brown horizontal line indicates the point where marginal cost equals average cost (MC = AC) and remains constant at a price of about 8 across different quantities.3. **Intersection Point**: - The intersection of the green demand line and the brown MC = AC line occurs at approximately quantity 5 and price 8.This graph can be used to illustrate concepts such as equilibrium price and quantity, as well as how costs influence market behavior.

Given, First purchase price- $16 Additional Purchase price- $12

Answered: You are the manager of a firm that…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

You are the manager of a firm that charges customers $16 per unit for the first unit purchased, and $12 per unit for each additional unit purchased in excess of one unit. The accompanying graph summarizes your relevant demand and costs.

a. What is the economic term for your firm’s pricing strategy?

multiple choice

Third degree price discrimination
Fourth degree price discrimination
First degree price discrimination
Second degree price discrimination

b. Determine the profits you earn from this strategy.

$

c. How much additional profit would you earn if you were able to perfectly price discriminate?

Instructions: In solving this problem, assume the firm cannot sell fractions of a unit.