Suppose the equilibrium price of bicycle tires is $42, but the market price falls to $37. Jerry can still make a profit at this lower price, so they stay in business. Anat, who could make a small profit by selling tires at $42, goes out of business as the price falls. Madison bought tires at the higher price from Anat and is delighted to buy them at a lower price from Jerry. Marcus, who previously did not purchase tires, is now willing to pay the lower price, so they buy new tires from Jerry. Which individual's actions contribute to a reduction in consumer surplus?

The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decayfigh ter, reduced the price of its electric toothbrush from $35 to $30. As a result, Stopde cays sales declined by 1,500 units per month. What is the arc cross elasticity of demand between Stopdecays toothbrush and Decayfighters toothbrush? What does this indicate about the relationship between the two products? If Stopdecay knows that the arc price elasticity of demand for its toothbrush is 1.5, what price would Stopdecay have to charge to sell the same number of units as it did before the Decayfighter price cut? Assume that Decayfighter holds the price of its toothbrush constant at $30. What is Stopdecays average monthly total revenue from the sale of electric toothbrushes before and after the price change determined in part (b)? Is the result in part (c) necessarily desirable? What other factors would have to be taken into consideration?

How does advertising intend to shift demand? How does it intend to change the elasticity of demand?

What is the relationship between product differentiation and monopolistic competition?

What is predatory pricing?

Andreas Day Spa began to offer a relaxing aromatherapy treatment. The film asks you how much to charge to maximize profits. The first two columns in Table 10.5 provide the price and quantity for the demand curve for treatments. The third column shows its total costs. For each level of output, calculate total revenue, marginal revenue, average cost, and marginal cost. What is the profit-maximizing level of output for the treatments and how much will the firm earn in profits?