2. Based on the following graph (which summarizes the demand, marginal revenue, and relevant costs for your product), determine your firm's optimal price, output, and the re- sulting profits for each of the following scenarios: (LO2) a. You charge the same unit price to all consumers. b. You engage in first-degree price discrimination. c. You engage in two-part pricing. d. You engage in block pricing. Price 110 100 90 80 70 60 50 40 30 20 10 0- MR MC-AC -D 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Quantity
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- 7. You are the manager of a monopolistically competitive firm, and your demand and costfunctions are given by Q = 36 − 4P and C(Q) = 4 + 4Q + Q2. (LO1, LO3, LO5)a. Find the inverse demand function for your firm’s product.You are the manager of College Computers, a manufacturer of customized computers that meet the specifications required by the local university. Over 90 percent of your clientele consists of college students. College Computers is not the only firm that builds computers to meet this university's specifications; indeed, it competes with many manufacturers online and through traditional retail outlets. To attract its large student clientele, College Computers runs a weekly ad in the student paper advertising its "free service after the sale" policy in an attempt to differentiate itself from the competition. The weekly demand for computers produced by College Computers is given by Q=1,400-5P, and its weekly cost of producing computers is (Q) = 1,600 +2Q². If other firms in the industry sell PCs at $300, what quantity and price of computers should you produce to maximize your firm's profits? Instructions: Round your response to the nearest whole number. Quantity: computers Instructions:…You are the manager of College Computers, a manufacturer of customized computers that meet the specifications required by the local university. Over 90 percent of your clientele consists of college students. College Computers is not the only firm that builds computers to meet this university's specifications; indeed, it competes with many manufacturers online and through traditional retail outlets. To attract its large student clientele, College Computers runs a weekly ad in the student paper advertising its "free service after the sale" policy in an attempt to differentiate itself from the competition. The weekly demand for computers produced by College Computers is given by Q=1,000-4P, and its weekly cost of producing computers is Ca)=1,200+20². If other firms in the industry sell PCs at $250, what quantity and price of computers should you produce to maximize your firm's profits? Instructions: Round your response to the nearest whole number. Quantity: 2000 computers Instructions:…
- You are the manager of College Computers, a manufacturer of customized computers that meet the specifications required by the local university. Over 90 percent of your clientele consists of college students. College Computers is not the only firm that builds computers to meet this university's specifications; indeed, it competes with many manufacturers online and through traditional retail outlets. To attract its large student clientele, College Computers runs a weekly ad in the student paper advertising its "free service after the sale" policy in an attempt to differentiate itself from the competition. The weekly demand for computers produced by College Computers is given by Q = 1,400 - 4P, and its weekly cost of producing computers is C(Q) = 1,600 +2Q². If other firms in the industry sell PCs at $300, what quantity and price of computers should you produce to maximize your firm's profits? Instructions: Round your response to the nearest whole number. Quantity: [ computers…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)Your software startup has just completed the latest version of BrainType, a mind-reading word processor that translates thoughts into text. Since you are the cutting-edge frontier, you have no direct competitors. As marketing manager, you must decide how to price BrainType. You commission a study that suggests that there are two markets: professional writers and dabbling hobbyists. There are one million professionals and two million hobbyists. Professionals are willing to pay up to $400 and hobbyists up to $100 for the full-feature version. A scaled-down version is worth $50 to hobbyists and nothing to professionals. Both versions are essentially free to produce. (a) What prices of the two versions generate the most revenue? (b) Suppose that, instead of the scaled-down version, the firm offers an intermediate version worth $200 to professionals and $75 to hobbyists. What prices generate the most revenue now? Is the firm better off selling the intermediate or scaled-down version?
- Non-linear pricing in water utilities: You are the manager of water utilities, and you are trying to determine how different water pricing schemes will affect consumption. One option for pricing is called decreasing block pricing, where the marginal price paid decreases with quantity paid. In particular, you are considering a decreasing block schedule where consumers pay $0.20 per gallon for the first 20 gallons consumed, and then $0.10 per gallon for any additional gallons consumed. For this decreasing block pricing scheme, draw the budget constraint for a consumer that has $10 of income, where the composite good is the good on the y-axis. Another option for pricing is called increasing block pricing, where the marginal price paid increases with the quantity paid. In particular, you are considering an increasing block schedule where consumers pay $0.20 per gallon for the first 20 gallons consumed, and then $0.40 per gallon for any additional gallons consumed. For this increasing…Use the accompanying graph to answer the questions that follow. (LO1, LO2) a. Suppose this monopolist is unregulated. (1) What price will the firm charge to maximize its profits? (2) What is the level of consumer surplus at this price? b. Suppose the firm’s price is regulated at $80. (1) What is the firm’s marginal revenue if it produces 7 units? (2) If the firm is able to cover its variable costs at the regulated price, how much output will the firm produce in the short run to maximize its profits? (3) In the long run, how much output will this firm produce if the price remains regulated at $80?You are the manager of a firm that produces products X and Y at zero cost. You know that different types of consumers value your two products differently, but you are unable to identify these consumers individually at the time of the sale. In particular, you know there are three types of consumers (1,000 of each type) with the following valuations for the two products: a. What are your firm’s profits if you charge $40 for product X and $60 for product Y? b. What are your profits if you charge $90 for product X and $160 for product Y? c. What are your profits if you charge $150 for a bundle containing one unit of product X and one unit of product Y? d. What are your firm’s profits if you charge $210 for a bundle containing one unit of X and one unit of Y, but also sell the products individually at a price of $90 for product X and $160 for product Y?
- You are the manager of a firm that produces and markets a generic type of soft drink in a competitive market. In addition to the large number of generic products in your market, you also compete against major brands such as Coca-Cola and Pepsi. Suppose that, due to the successful lobbying efforts of sugar producers in the United States, Congress is going to levy a $0.50 per pound tariff on all imported raw sugar—the primary input for your product. In addition, Coke and Pepsi plan to launch an aggressive advertising campaign designed to persuade consumers that their branded products are superior to generic soft drinks. How will these events impact the equilibrium price and quantity of generic soft drinks?You are the manager of a small pharmaceutical company that received a patent on a new drug three years ago. Despite strong sales ($150 million last year) and a low marginal cost of producing the product ($0.50 per pill), your company has yet to show a profit from selling the drug. This is, in part, due to the fact that the company spent $1.7 billion developing the drug and obtaining FDA approval. An economist has estimated that, at the current price of $1.50 per pill, the own price elasticity of demand for the drug is –2. Based on this information, what can you do to boost profits? Explain.You are the manager of a small pharmaceutical company that received a patent on a new drug three years ago. Despite strong sales ($150 million last year) and a low marginal cost of producing the product ($0.50 per pill), your company has yet to show a profit from selling the drug. This is, in part, due to the fact that the company spent $1.7 billion developing the drug and obtaining FDA approval. An economist has estimated that, at the current price of $1.50 per pill, the own price elasticity of demand for the drug is −2. Based on this information, what can you do to boost profits? multiple choice Leave price unchanged - you are at maximum profits Reduce price Increase price