Choose two pricing strategies that were discussed in Chapter (Pricing Strategies for Firms with Market Power) that you would implement as the firm manager.
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Imagine that you are the manager of a large clothing company with market power that specializes in selling blue jean pants.
1) Choose two pricing strategies that were discussed in Chapter (Pricing Strategies for Firms with Market Power) that you would implement as the firm manager.
2) Explain how exactly you would implement these two pricing strategies in the real-world
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- Jabari's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Jabari initially produced five trucks, but then decided to increase production to six trucks. The following graph gives the demand curve faced by Jabari's HookNLadder. As the graph shows, in order to sell the additional fire truck, Jabari must lower the price from $160,000 to $120,000 per truck. Notice that Jabari gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial five engines because they are all sold at the lower price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial five engines by selling at $120,000 rather than $160,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $120,000. PRICE (Thousands of dollars per fire engine) 220 200 180 160 140 120 100 80 60 40 20 Jabari 0 0 1 2 3…1. It is 1908 and you are the CEO of Ford Motor Company. General Motors startedproducing cars this year and has quickly become your chief rival. Their recent entrance, as wellas your assembly line methods, allows you the advantage of producing cars faster and choosingyour output levels first. Assume the 1908 inverse demand function for cars is P = 3900 - Q(customers view cars as identical products at this point in time) and production costs are C(qi) =100qi. a. What is Ford’s profit-maximizing output level? GM's?b. What is the market equilibrium price?c. How much profit does each firm earn?d. As the assembly line is used by other firms, the first-mover advantage disappears (fast forward100 years to present day), and more firms have entered the market (e.g. FCA, Tesla, Hyundai,Toyota, Honda, etc.), what do you expect to happen to Ford’s profit (assume demand andcosts are the same)? Explain.e. From 1908 into the 1920s, Ford offered customers one car: the Model T. Further, Henry isfamous…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)
- Question 3 Assume we have a market with only two companies in it, Company X and Company Y. Now suppose that both companies have to choose one of two potential strategies for pricing their products: setting a low price or setting a high price. The table below shows the expected profits for each company under each pricing scenario. Assume both companies are in competition with each other and seek to maximize their profits. Under these conditions, how much profit should we expect both companies to earn? Company Y Provide your answer below: High Price Low Price High Price Profit for Company Y: $12, 975,000 Profit for Company X: $12, 975,000 Profit for Company Y: $16, 218,000 Profit for Company X: $1,946, 000 Company X Low Price Profit for Company Y: $1,946, 000 Profit for Company X: $16, 218,000 Profit for Company Y: $6,487,000 Profit for Company X: $6,487,000Joe has just moved to a small town with only one golf course, the Northlands Golf Club. His inverse demand function is p=140-2q, where q is the number of rounds of golf that he plays per year. The manager of the Northlands Club negotiates separately with each person who joins the club and can therefore charge individual prices. This manager has a good idea of what Joe's demand curve is and offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds as he wants at $20, which is the marginal cost his round imposes on the Club. Joe marries Susan, who is also an enthusiastic golfer. Susan wants to join the Northlands Club. The manager believes that Susan's inverse demand curve is p=120-2q. The manager has a policy of offering each member of a married couple the same two-part prices, so he offers them both a new deal. What two-part pricing deal maximizes the club's profit? Will this new pricing have a higher or lower access fee than in Joe's original deal?…Jones is the manager of an upscale clothing store in a shopping mall that contains only two such stores. While these two competitors do not carry the same brands of clothes, they serve a similar clientele. Jones was recently notified that the mall is going to implement a 10 percent across-the-board increase in rents to all stores in the mall, effective next month. Should Jones raise her prices 10 percent to offset the increase in monthly rent? Explain carefully.
- Joe has just moved to a small town with only one golf course, the Northlands Golf Club. His inverse demand function is p=140-2q, where q is the number of rounds of golf that he plays per year. The manager of the Northlands Club negotiates separately with each person who joins the club and can therefore charge individual prices. This manager has a good. idea of what Joe's demand curve is and offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds as he wants at $20, which is the marginal cost his round imposes on the Club. Joe marries Susan, who is also an enthusiastic golfer. Susan wants to join the Northlands Club. The manager believes that Susan's inverse demand curve is p=120-2q. The manager has a policy of offering each member of a married couple the same two-part prices, so he offers them both a new deal. What two-part pricing deal maximizes the club's profit? Will this new pricing have a higher or lower access fee than in Joe's original…Eric owns a plot of land in the desert that isn't worth much. One day, a giant meteorite falls on his property, making a large crater. The event attracts scientists and tourists, and Eric decides to sell nontransferable admission tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following graphs show daily demand (DD) curves and marginal revenue (MRMR) curves for the two markets. Eric's marginal cost of providing admission tickets is zero. PRICE (Dollars per ticket) 20 18 16 9 09 2 0 0 1 Market A MR 2 3 4 5 6 7 8 QUANTITY (Admission tickets) Pricing Policy Nondiscriminatory Discriminatory D 0 10 Total Revenue (Dollars) PRICE (Dollars per ticket) 20 18 18 14 12 10 8 4 2 0 0 1 low Market B Imagine that at first, Eric charges the same price of $8 per admission in both markets so that the total number of admissions demanded is Tickets. Imagine now that Eric decides to charge a different price in each market. To maximize revenue, Eric…Complete the following table by matching each of the scenarios to the concept of resale price maintenance, predatory pricing, or bundling. Resale Price Maintenance Predatory Pricing Scenario Citron is a firm that manufactures electric scooters. Suppose Citron sells its electric scooters to online retailers for $830 each and requires those online retailers to charge at least $840 to shoppers for each electric scooter. Hynes sells a wide variety of condiments to retail grocery stores. Hynes recently developed two new condiments: a popular barbacuffalo and a much less popular green ketchup. Hynes requires grocery stores to order 10 bottles of the green ketchup for every 100 bottles of the barbacuffalo bought. Warm Winds is the only firm producing air fryers. It costs $430 to produce one air fryer, and Warm Winds sells each air fryer for $850. After Sirocco, a new firm with the same costs as Warm Winds, enters the market for air fryers, Warm Winds starts selling its air fryers for a price…
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