per pair You are the CEO of a company that advises clients on pricing strategies. Bilbo Baggins is a profit maximizing client who produces uniquely styled shoes and hires you for pricing advice. The graph shows the demand and marginal revenue (MR) curves faced by Bilbo's company for two different groups of consumers. Assume Bilbo can prevent the reselling of his shoes, faces constant marginal cost (MC) equal to $20/pair, can identify varying consumer groups, and has no fixed costs (so, MC ATC). Use the graph to answer the questions. = Price $100 90 80 70 60 50 40 B What price should Bilbo charge? He should charge the more elastic group $60/pair and the less elastic group $70/pair. 30 30 20 10 10 MR 2 Demand 2 He should shutdown in the short run because price is not greater than fixed costs. 0 100 200 300 40C He should price discriminate and produce where P = MC and charge $20/pair. He should produce where MR = MC and charge $70/pair.

Economics:
10th Edition
ISBN:9781285859460
Author:BOYES, William
Publisher:BOYES, William
Chapter28: Antitrust And Regulation
Section: Chapter Questions
Problem 3E
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per pair
You are the CEO of a company that advises clients on pricing
strategies. Bilbo Baggins is a profit maximizing client who
produces uniquely styled shoes and hires you for pricing
advice. The graph shows the demand and marginal revenue
(MR) curves faced by Bilbo's company for two different
groups of consumers. Assume Bilbo can prevent the reselling
of his shoes, faces constant marginal cost (MC) equal to
$20/pair, can identify varying consumer groups, and has no
fixed costs (so, MC ATC). Use the graph to answer the
questions.
=
Price
$100
90
80
70
60
50
40
B
What price should Bilbo charge?
He should charge the more elastic group $60/pair
and the less elastic group $70/pair.
30
30
20
10
10
MR 2
Demand 2
He should shutdown in the short run because price is
not greater than fixed costs.
0
100 200 300 40C
He should price discriminate and produce where
P = MC and charge $20/pair.
He should produce where MR = MC and
charge $70/pair.
Transcribed Image Text:per pair You are the CEO of a company that advises clients on pricing strategies. Bilbo Baggins is a profit maximizing client who produces uniquely styled shoes and hires you for pricing advice. The graph shows the demand and marginal revenue (MR) curves faced by Bilbo's company for two different groups of consumers. Assume Bilbo can prevent the reselling of his shoes, faces constant marginal cost (MC) equal to $20/pair, can identify varying consumer groups, and has no fixed costs (so, MC ATC). Use the graph to answer the questions. = Price $100 90 80 70 60 50 40 B What price should Bilbo charge? He should charge the more elastic group $60/pair and the less elastic group $70/pair. 30 30 20 10 10 MR 2 Demand 2 He should shutdown in the short run because price is not greater than fixed costs. 0 100 200 300 40C He should price discriminate and produce where P = MC and charge $20/pair. He should produce where MR = MC and charge $70/pair.
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