1. The demand for an auto company's sport utility vehicle is characterized by two types of customers. "Suburban parents" have market demand Q=200-0.67P. "Weekend warriors" have market demand Q -300-1.5P. Horizontal summation gives total demand of Q=200-0.67P+300-1.5P-500-2.17P The inverse demand curve for this is P=230-0.460. a. If the auto company cannot charge different prices to these two groups, what would be the optimal price to charge? At that price, calculate the quantity sold and total profits, if the firm produces the vehicles at constant marginal cost = 100, and fixed cost = 8,000. b. If the firm could separate out the two kinds of customers and has enough monopoly power to charge them different prices, what would be the optimal price and quantity sold in each market segment? What would be total profits? c. Discuss possible realistic ways an auto company might segment the market for such a product.

1. The demand for an auto company's sport utility vehicle is characterized by two types of customers. "Suburban parents" have market demand Q=200-0.67P. "Weekend warriors" have market demand Q -300-1.5P. Horizontal summation gives total demand of Q=200-0.67P+300-1.5P-500-2.17P The inverse demand curve for this is P=230-0.460. a. If the auto company cannot charge different prices to these two groups, what would be the optimal price to charge? At that price, calculate the quantity sold and total profits, if the firm produces the vehicles at constant marginal cost = 100, and fixed cost = 8,000. b. If the firm could separate out the two kinds of customers and has enough monopoly power to charge them different prices, what would be the optimal price and quantity sold in each market segment? What would be total profits? c. Discuss possible realistic ways an auto company might segment the market for such a product.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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