Problem 1. Amazon offers different prices to two groups of consumers for its Prime membership: Group S and Group R. Suppose that demands of these two groups are as follows: Qs(p) = 100 – pQr(p) = 200 – 4p Amazon’s marginal cost for offering one additional Prime membership (to either group) is $20What is the profit-maximizing price for each group of consumers? What are the quantities sold to each group under these prices? (Hint: Start by writing down the inverse demand for each group.)What is the demand elasticity of Group R at their profit-maximizing price?Calculate the profits Amazon earn from each group of consumersSuppose that Amazon can perfectly price discriminate and set a price equal to each consumer’s willingness to pay in both groups. Compute (total) Amazon’s profit.

1. Profit-Maximizing Price and Quantity for Each GroupTo determine the profit-maximizing price and…

Answered: Problem 1. Amazon offers different…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Problem 1. Amazon offers different prices to two groups of consumers for its Prime membership: Group S and Group R. Suppose that demands of these two groups are as follows:

Qs(p) = 100 – p

Qr(p) = 200 – 4p

Amazon’s marginal cost for offering one additional Prime membership (to either group) is $20

What is the profit-maximizing price for each group of consumers? What are the quantities sold to each group under these prices? (Hint: Start by writing down the inverse demand for each group.)
What is the demand elasticity of Group R at their profit-maximizing price?
Calculate the profits Amazon earn from each group of consumers
Suppose that Amazon can perfectly price discriminate and set a price equal to each consumer’s willingness to pay in both groups. Compute (total) Amazon’s profit.

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