A distillery makes whisky, where its profits from production per bottle are given by 7 = p – y² where p is the price it charges per bottle and y is the number of years the bottle is aged. There are two types of whisky drinkers, connoisseurs (H type) and casuals (L type). H-type have utility UH (Y, p) = 8y - p, while L-type have utility uz (y, p) = 2y – p. There are 10 consumers of each type, and each will buy at most one bottle. Each consumer's utility if she does not buy is 0. If a consumer is indifferent between buying two bottles, assume she will buy the more aged one (the one wi higher y). If a consumer is indifferent between buying a bottle and not buying, assume she will buy. Bottles are characterised by (y, p), years of age and price. For each menu of offerings below, calculate the distillery's profit. (1,9) and (4, 24) (1, 2) and (4, 24) (1, 2) and (2, 24) Calculate the firm's profits when it chooses the optimal menu.

A distillery makes whisky, where its profits from production per bottle are given by 7 = p – y² where p is the price it charges per bottle and y is the number of years the bottle is aged. There are two types of whisky drinkers, connoisseurs (H type) and casuals (L type). H-type have utility UH (Y, p) = 8y - p, while L-type have utility uz (y, p) = 2y – p. There are 10 consumers of each type, and each will buy at most one bottle. Each consumer's utility if she does not buy is 0. If a consumer is indifferent between buying two bottles, assume she will buy the more aged one (the one wi higher y). If a consumer is indifferent between buying a bottle and not buying, assume she will buy. Bottles are characterised by (y, p), years of age and price. For each menu of offerings below, calculate the distillery's profit. (1,9) and (4, 24) (1, 2) and (4, 24) (1, 2) and (2, 24) Calculate the firm's profits when it chooses the optimal menu.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Kroger, the country's leading grocery-only chain, added a line of private latbel organic and natural foods call Simple Truth to its stores. If you've priced organic foods, you know they are more expensive. For example, a dozen conventionally farmed Grade-A eggs at Kroger costs consumers $1.5, whereas Simple Truth eggs are priced at $3.5 per dozen. One study found that, overall, the average price of organic foods is 85 percent more than that of conventional foods. However, if prices get too high, consumers will not purchase the organic options. One element of sustainability is organic farming, which costs much more than conventional farming, and those higher costs are passed on to consumers. Suppose that a conventional egg farmer's average fixed costs per year for conventionally-farmed eggs are $1 milion per year, but an organic egg farmer's fixed costs are four times that amount. Further assume that the organic farmer's variable costs of $2.7 per dozen are three times as much as…
Utility Maximization A consumer faces income constraints and has CES preferences of the following form: U(x, y)= x y Are these preferences homothetic? Explain why or why not.
A pirate is about to set sail on a 2-period journey (trip). He has 100 bags of barley (food). He must decide how much to consume in period 1 and how much to consume in period 2: (C1, c2). He gets all the barley in period 1 and none in period 2. Unfortunately, rats will eat 50% of any barley that he saves to consume in period 2. If the pirate's utility function is U(C1, C2) = C1C2, what levels of consumption does he choose in each period? (Hint: The "price" of barley in each period can be assumed to be 1.)
Suppose you get two job offers when you graduate. First offer is in LA and pays $6000 permonth. The price of food in LA is $3 and price of housing is $5. The second offer is in SanFrancisco and pays $10000. Both food and housing is more expensive in SF at PF = 4 and PH = 6respectively. If your utility function is U (F, H) = F1/4 H 3/4 which job offer should you accept?
which is the nash equilibrium? small pig does press large pig does press (20, 130), small pig doesn't press large pig does press (140, 10), small pig does press large pig doesn't press (-5, 150), small pig does not press large pig doesn't press (0,0).
Suppose you manage a factory with ten workers. Each worker’s output is determined by the equation q = e. Output sells in the market for a price of 40. The firm has fixed cost equal to 800, and variable costs aside from labor are 8 per unit of output. Worker utility is U = w – e2. Suppose you are paying workers a wage equal to bq. What is the profit- maximizing value of b? Suppose that the probability of worker error increases as the worker increases effort, and that worker error results in unusable output. Suppose that the probability of worker error is Pr[Error] = e/10. Then for worker effort level e, expected (usable) output is now determined by the equation E[q] = (1-Pr[Error]) x e. However, the problem is that you cannot detect errors until after the product is shipped to customers, meaning you pay workers for output before you know whether it is usable or not, and you have to refund your customers for unusable output. Demonstrate why you should not pay your workers the same…
2
Economics Consider two friends Anna and Elsa whose gains and losses are listed as follows: Anna's investment is worth $2.5 million (decreased from $3.5 to $2.5 million) Elsa's investment is worth $2.2 million (increased from $2 to $2.2 million) For each of them write down the reference utility function (First determine the reference point (use a parameter) and derive reference utility function for each).
Joe and Martin, two roommates, have access to music in digital and analog formats. Each are initially endowed with 8 GB of high-resolution digital music and 4 vinyl LP's (analog) per month (there are a total of 16 GB's of music in digital and 8LP's in this case). Joe's preferences for music in digital and analog formats are represented by the utility function u, (D, A) = 2D + 2A, where D is the amount of digital music in GB's and A is the numberofLP's. Martin's utility function is um(D,A)=D+4A. 1. Draw an Edgeworth box to show the initial endowments and the indifference curves (going through the initial endowments) for Joe and Martin. What are their utility levels from the initial endowments? 2. Calculate the marginal rates of substitution for Joe and Martin. Provide an economic interpretation. 3. Do the initial endowments represent a Pareto efficient allocation? Discuss. 4. If Joe convinces Martin to exchange music at terms which would leave Martin at his initial utility level (i.e.,…
What is the optimal decision for a consumer with perfectly complementary preferences U = min (4X, 2Y] MRS = 4X+2Y MRS = 4/2 Y = 2X 2X=4Y