The market demand for a month's supply of a generic medicine is:Q = 400-0.5P.The demand can be rewritten as P= 800-2Q, so that the marginal revenue is MR = 800-4Q. The marginal cost (MC) and average total cost (ATC) are constant, and both equal $40. Consequently, the supply curve isP=MC = $40.Suppose that the firms' managers compete.The quantity produced by them will be ☐ units.The price of the product will be $The total economic profit made by all of the firms combined will be $

Answered: The market demand for a month's supply…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A travel agency identifies two customer segments for a cruise ship. The demand curve for customers that are less price-sensitive is D1=1000-2P1. The demand curve for customers that are more price-sensitive is D2=1000-3P2. The cost of maintaining each cabin is $50. If one single price is charged, what is the price to maximize the profit? What is the profit? If the differential prices are charged to each customer segment, what is the price for each customer segment respectively? What is the total profit? What is the profit increase by charging different prices to each customer segment compared with one single price?
A pharmaceutical company is the only producer of a particular drug. It sells that drug in two countries, one rich and the other a development country. The inverse demand for the drug in the rich country is pr(qr) = 20 – 2qñ, and in the developing country it is pp(qp) 10- qp. The total cost of production is C(qR, qp) = (qr+qp)². What is the profit-maximizing quantity in the rich country, qR? (a) qR = 1 (b) qR = 3 (c) qR = 6 (d) qR 8 (e) qR 14
Suppose a local supermarket runs a discount campaign on the sales of shampoos using discount coupons – any customer who shows a discount coupon will be offered an 20% discount on the original retail price. Discuss TWO practical limitations for the supermarket to conduct coupon discount.
Suppose the inverse demand curve for drugs is p(q) = 200 - 4q and the inverse supply curve is p(q) = q. Draw the supply and demand curves on the graph below. Label the current price and quantity, label and calculate the current producer and consumer surplus, and calculate and label the total revenue accumulating to suppliers in this market.
All consumers have identical demand for a pint of pistachio ice cream. Each person has a demand function of P = 30 – 2Q, where P is the price and Q is the number of pints. Marginal cost is $2. Design a two-part tariff and calculate profits.
In a small town there is only one movie theater. If the theater is open, the owners have to pay a fixed amount of $6,000 for the films, ushers, etc., regardless of how many people come to the movie. For simplicity, assume that if the theater is closed, its costs are zero. The demand function for movies in the town is characterized by A = 45-T 60 a. Graph the market demand curve, the marginal revenue curve, and the marginal cost curve. Label the axes, curves, and intercepts. b. Find the profit-maximizing price and quantity of movie tickets, and indicate them on the graph. How much would the theater make in profits? c. Calculate deadweight loss caused by the monopoly and indicate the area on the graph. |
Wonderland is the only amusement park in a town. Suppose its marginal cost of providing a ride is constant at $3 and an average visitor's demand for rides is given by D(p) = 32 - 4p. If Wonderland wants to maximize its profit using a two-part tariff, how much should it charge for entry per person and how much should it charge for each ride?
A local hospital offered to buy firm A for $5,000, and the offer was refused. However, many observers now perceive that firm A is “in play” and may be sold if the right offer comes along. a. In successful transactions, purchasers have typically paid ten times current profits. How much would firm A be worth to a buyer from outside the industry? b. Would you expect that firm B would be willing to pay more or less than an outside buyer? c. What is the most firm B would be willing to pay for firm A?
If the inverse demand function is P=10-Q and total cost is C=2Q, what is the optimal fixed cost to be charged in a two part pricing ?
Problem 3. British airways has regular flights between Arizonia and Oregon. It can treat travers A and B as separate markets. Suppose that it notes a demand function of Q=16-P for A travelers and a demand function Q=10-P for B travelers and that it has a cost function for all travelers of C(Q)=10+Q2. How much should it charge in each market to maximize its profit? Verify that your answer represents a profit-maximizing point rather than a profit-minimizing point for the airline.
**Practice**
Two dermatologist practices want to merge. The price elasticity of demand for dermatology services is -0.35. Firm 1 has a volume of 7,500, fixed costs of $70,000, marginal costs of $20, and a market share of 8%. Firm 2 has a volume of 15,600, fixed costs of $65,000, marginal costs of $20, and a market share of 12 percent. The merged firm will have a volume of 21,500, fixed costs of $95,000, marginal costs of $20, and a market share of 20%. What are the total costs, prices, revenues, and profits for each firm and for the merged firm, respectively?

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