Connect Access Card for Managerial Econnomics
9th Edition
ISBN: 9781259354335
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 21PAA
To determine
The range over which there will be changes in the marginal cost having no effect on CD's profit maximizing level of output is to be explained.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
PC Connection and CDW are two online retailers that compete in an Internet market for digital cameras. While the products they sell are similar, the firms attempt to differentiate themselves through their service policies. Over the last couple of months, PC Connection has matched CDW’s price cuts but has not matched its price increases. Suppose that when PC Connection matches CDW’s price changes, the inverse demand curve for CDW’s cameras is given by P = 1,500 − 3Q. When it does not match price changes, CDW’s inverse demand curve is P = 900 − 0.50Q. Based on this information, determine CDW’s inverse demand and marginal revenue functions over the last couple of months. Over what range will changes in marginal cost have no effect on CDW’s profit-maximizing level of output?
A golf club’s owner has commissioned a market study that estimates the average customer’s monthly demand curve for playing 18-hole golf game to be
Q=50 – 0.5P,
where Q stands for the number of 18-hole golf game, and P is the green fee. The marginal cost is given by MC=20.
(1) Under two-part pricing strategy, what is the optimal amount of green fee to charge for one round of 18-hole golf game?
(2) Under two-part pricing strategy, what is the optimal amount of membership due?
(3) Under two-part pricing strategy, what is the size of the profit obtained from the average customer?
You are a pricing analyst for QuantCrunch Corporation, a company that sells a statistical software package. To date, you only have one client. A recent internal study reveals that this client’s inverse demand for your software is P=1500-5Q and that it would cost you $1,000 per unit to install and maintain software at this client’s site. What is the profit that results from two-part pricing?
(Hint: set the per-unit price for each unit of the software installed and maintained equal to marginal cost; and charge a fixed “licensing fee” that extracts all consumer surplus from the client)
Chapter 9 Solutions
Connect Access Card for Managerial Econnomics
Ch. 9 - Prob. 1CACQCh. 9 - Prob. 2CACQCh. 9 - Prob. 3CACQCh. 9 - Prob. 4CACQCh. 9 - Prob. 5CACQCh. 9 - Prob. 6CACQCh. 9 - Prob. 7CACQCh. 9 - Prob. 8CACQCh. 9 - Prob. 9CACQCh. 9 - Prob. 10CACQ
Ch. 9 - Prob. 11PAACh. 9 - Prob. 12PAACh. 9 - Prob. 13PAACh. 9 - Prob. 14PAACh. 9 - The opening statement on the website of the...Ch. 9 - Prob. 16PAACh. 9 - Prob. 17PAACh. 9 - Prob. 18PAACh. 9 - Prob. 19PAACh. 9 - Prob. 20PAACh. 9 - Prob. 21PAACh. 9 - Prob. 22PAACh. 9 - Prob. 23PAACh. 9 - Prob. 24PAA
Knowledge Booster
Similar questions
- As a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on weekends than during the week. You therefore conducted a study that has revealed two different demand curves at your movie theaters. On weekends, the inverse demand function is P= 20 – 0.001Q, on weekdays, it is P= 15 - 0.002Q. You acquire legal rights from movie producers to show their films at a cost of $25,000 per movie, plus a $2.50 “royalty" for each moviegoer entering your theaters (the average moviegoer in your market watches a movie only once). What type of pricing strategy should you consider in this case? O Third degree price discrimination O Block pricing O First degree price discrimination O Second degree price discrimination What price should you charge on weekends? Instructions: Enter your response rounded to two decimal places. $ What price should you charge on weekdays? Instructions: Enter your response rounded to two decimal places.arrow_forwardAs a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on weekends than during the week. You therefore conducted a study that has revealed two different demand curves at your movie theaters. On weekends, the inverse demand function is P= 20 – 0.001Q; on weekdays, it is P= 12 – 0.002Q. You acquire legal rights from movie producers to show their films at a cost of $25,000 per movie, plus a $3.00 “royalty" for each moviegoer entering your theaters (the average moviegoer in your market watches a movie only once). What type of pricing strategy should you consider in this case? O First degree price discrimination O Third degree price discrimination O Second degree price discrimination O Block pricing What price should you charge on weekends? Instructions: Enter your response rounded to two decimal places. What price should you charge on weekdays? Instructions: Enter your response rounded to two decimal places.arrow_forward1) Suppose you are operating a discount movie theater and want to increase profits by charging adults and kids different prices. Assume there are no variable costs, just fixed costs to show the movie. You estimate the inverse demand function for kids to be: p1(y1) = 4 - 0.05y1 You estimate the inverse demand function for adults to be: p2(y2) = 9.6 - 0.08y2 a) How many kids will watch a movie? What price will you charge kids? b) How many adults will watch a movie? What price will you charge adults?arrow_forward
- Suppose Mattel, the producer of Barbie dolls and accessories (sold separately), has two types of consumers who purchase its dolls: low-value consumers and high-value consumers. Each of the low-value consumers tends to purchase one doll and one accessory, with a total willingness to pay of $60. Each of the high-value consumers buys one doll and two accessories and is willing to pay $114 in total. Mattel is currently considering two pricing strategies: Strategy 1: Sell each doll for $30 and each accessory for $301 Strategy 2: Sell each doll for $6 and each accessory for $54 In the following table, indicate the revenue for a low-value and a high-value customer under strategy 1 and strategy 2. Then, assuming each strategy is applied to one low-value and one high-value customer, indicate the total revenue for each strategy. Strategy 1 $30 doll + $30 accessory Strategy 2 $6 doll + $54 accessory Revenue from Low-Value Customers $60 Value, 1 Accessory ($) $ $ The strategy that generates the…arrow_forwardThe second largest public utility in the nation is the sole provider of electricity in 32 counties of southern Florida. To meet the monthly demand for electricity in these counties, which is given by the inverse demand function P= 1,200 – 4Q, the utility company has set up two electric generating facilities: Q kilowatts are produced at facility 1, and Q2 kilowatts are produced at facility 2 (so Q= Q + Q2). The costs of producing electricity at each facility are given by G(Q) = 8,000 + 6Q2 and C2(2) = 6,000 + 3022, respectively. Determine the profit-maximizing amounts of electricity to produce at the two facilities, the optimal price, and the utility company's profits. Instruction: Enter your responses rounded to two decimal places. Electricity at facility 1: units Electricity at facility 2: units Price: $ Instruction: Use the rounded values calculated above. Enter your response rounded to the nearest two decimal places. Profits: $arrow_forwardThe inverse demand curve facing a resort hotel is during the low season and PL = 100-Q₁ PH = 350 – QH during the high season. The resort's marginal cost is $50 per night in cleaning costs for the room and general maintenance and administration. The resort only has 75 rooms. What is the resort's profit- maximizing peak-load pricing strategy? Illustrate the solution in a diagram. 1.) Using the point drawing tool, indicate the profit-maximizing price during the low season. Label this point 'e' 2.) Using the point drawing tool, indicate the profit-maximizing price during the high season. Label this point 'eH Carefully follow the instructions above, and only draw the required objects. p. $ per night 69 400- 350- 300- 250- 200- a 150- 100- 50- 0- 0 MR D MRH 50 100 150 200 250 300 Q, Rooms per night MG DH 350 400 Q ONarrow_forward
- The Camera Shop sells two popular models of digital SLR cameras (Camera A Price: 200, Camera B Price: 300). The sales of these products are not independent of each other, but rather if the price of one increase, the sales of the other will increase. In economics, these two camera models are called substitutable products. The store wishes to establish a pricing policy to maximize revenue from these products. A study of price and sales data shows the following relationships between the quantity sold (N) and prices (P) of each model: NA 198 0.5PA + 0.25PB NB = 305 + 0.07PA - 0.6PB Construct a model for the total revenue and implement it on a spreadsheet. Develop a two-way data table to estimate the optimal prices for each product in order to maximize the total revenue. Vary each price from $250 to $500 in increments of $10. Max profit occurs at Camera A price of $ Max profit occurs at Camera B price of $arrow_forwardThe inverse demand curve facing a resort hotel is during the low season and PL = 100 - QL PH = 400 - QH during the high season. The resort's marginal cost is $50 per night in cleaning costs for the room and general maintenance and administration. The resort only has 100 rooms. What is the resort's profit-maximizing peak-load pricing strategy? Illustrate the solution in a diagram. 1.) Using the point drawing tool, indicate the profit-maximizing price during the low season. Label this point 'e.' 2.) Using the point drawing tool, indicate the profit-maximizing price during the high season. Label this point 'e.' Carefully follow the instructions above, and only draw the required objects. C p, $ per night 400- 350+ 300- 250- 200- 150- 100- 50- 0+ 0 MR D 50 ☆ H MR' 100 150 200 250 300 Q, Rooms per night MC DH 350 400 LYarrow_forwardThe market for dark chocolate us characterized by Cournot duopolists - Honeydukes and Wonka industries. The market demand for dark chocolate is: P = 8 - 0.005Qd where P is the price per bar in dollars and Qd is dark chocolate's daily quantity demanded in bars (use qh to represent the quantity of dark chocolate sold by Honeydukes and qw to represent the quantity of dark chocolate sold by Wonka Industries). Honeydukes has a constant marginal cost of $2.50 per bar, while Wonka Industries has a constant marginal cost of $3.00 per bar. The firms move simultaneously in choosing their profit-maximizing quantity of output. a. Given the firms move simultaneously, what is the equation for Honeydukes' reaction function with qh expressed as a function of qw? b. Given the firms move simultaneously, what is the equation for Wonka's reaction function with qw expressed as a function of qh? c. What quantity of dark chocolate will each firm produce in equilibrium and what price will be established for a…arrow_forward
- A manager of a nightclub realizes that demand for drinks is more elastic among students and is trying to determine the optimal pricing schedule. Specifically, he estimates the following average demand for his customer types: Under 25: qr =18-5p Over 25: q=10-2p The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the club $2 to make. If the manager can charge a separate entry fee and a price per drink for each group, what two-part price will the manager set for reach group. Now suppose that once again it is impossible to identify which group the customers belong. Suppose the manager lowers the price of drinks to equal to marginal cost and still wanted to attract both customers, what entry fee would the manager set? Compare the profits earned in parts a) to d). Which scheme would you choose if you could not identify customer type and which would you choose if you could identify customer type.arrow_forwardOur discussion of Cournot in the lecture focused on the case with homoge- nous products. In many markets, products produced by competing firms are not perfect but imperfect substitutes. We consider such a case here. There are in total N firms, each producing a unique variety which are imperfect substitutes to each other. Since they are different, each variety i with i = 1, 2, ..., N, has a price pi. Let the symmetric inverse demand of each variety be Pi(gi, Q-i) = a - bqi - oQ-i, -i where Q_₁ = [q; is the total output produced by all firms other than firm i. Parameters a, b, and o are all strictly positive. The parameter a is the price when no firms supply to the market. The parameter b measures how sensitive p; is to a change of firm i's own supply, while o measures such sensitivity to other firms' total supply. Notice that in a Cournot model, we would have b = o. An assumption o € [-b/(N-1), b] is imposed to ensure the problem is well-defined (this assumption is only for completeness…arrow_forwardOur discussion of Cournot in the lecture focused on the case with homoge- nous products. In many markets, products produced by competing firms are not perfect but imperfect substitutes. We consider such a case here. There are in total N firms, each producing a unique variety which are imperfect substitutes to each other. Since they are different, each variety i with i = 1, 2, ..., N, has a price pi. Let the symmetric inverse demand of each variety be Pi(gi, Q-i) = a - bqi - oQ-i, -i where Q_₁ = [q; is the total output produced by all firms other than firm i. Parameters a, b, and o are all strictly positive. The parameter a is the price when no firms supply to the market. The parameter b measures how sensitive p; is to a change of firm i's own supply, while o measures such sensitivity to other firms' total supply. Notice that in a Cournot model, we would have b = o. An assumption o € [-b/(N-1), b] is imposed to ensure the problem is well-defined (this assumption is only for completeness…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education