Tim's Tires sells tires under the firm's own brand name and private label tires to discount stores. The tires sold in both sub-markets are identical, and the marginal cost is constant at $15 per tire for both types. The firm has estimated the following demand curves for each of the markets: PB = 70 - 0.0005QB (brand name) = 20 - 0.0002QP (private label). Quantities are measured in thousands per month and price refers to the wholesale price. By selling the brand name and private label tires at different prices, the firm is using v price discrimination. With price discrimination, the optimal price of brand name tires is v and the optimal quantity is v. The optimal price of private label tires is v and the optimal quantity is v. The firm's TOTAL profit is v (assume fixed costs are zero). If the firm cannot price discriminate and must charge a single price in the market, the optimal price is v. The firm's total profit in this case is v and the optimal quantity is approximately v (again, assume fixed costs are zero). When price discriminating, the firm charges a higher price in the brand name market because demand for brand name tires is more v than demand for private label tires. That is, consumers of private label tires are more v to prices.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

Hello, can you complete all parts to this question and show me how you got your answers for better understanding, thank you.

$**Tim's Tires Economic Analysis: Price Discrimination and Optimization** Tim's Tires sells tires under its own brand name and private label tires to discount stores. Both sub-markets are identical, and the marginal cost is constant at $15 per tire for both types. The firm has determined the following demand curves for each market: - **Brand Name Tires (PB)**: $ P_B = 70 - 0.0005Q_B $ - **Private Label Tires (PP)**: $ P_P = 20 - 0.0002Q_P $ *Quantities are measured in thousands per month and price refers to the wholesale price.* The firm is utilizing **price discrimination** by selling brand name and private label tires at different prices. **With Price Discrimination:** - The optimal price for brand name tires is $ \_\_\_\_ $, and the optimal quantity is $ \_\_\_\_ $. - The optimal price for private label tires is $ \_\_\_\_ $, and the optimal quantity is $ \_\_\_\_ $. - The firm's **TOTAL profit** is $ \_\_\_\_ $ (assuming fixed costs are zero). **Without Price Discrimination (Single Price Strategy):** - The optimal price is $ \_\_\_\_ $, and the optimal quantity is $ \_\_\_\_ $. - The firm's total profit in this scenario is approximately $ \_\_\_\_ $ (again, assuming fixed costs are zero). **Elasticity and Market Behavior:** When engaging in price discrimination, the firm sets a higher price in the brand name market because demand for brand name tires is less $ \_\_\_\_ $ compared to demand for private label tires. This means consumers of private label tires are more $ \_\_\_\_ $ to prices.$

Transcribed Image Text:**Tim's Tires Economic Analysis: Price Discrimination and Optimization** Tim's Tires sells tires under its own brand name and private label tires to discount stores. Both sub-markets are identical, and the marginal cost is constant at $15 per tire for both types. The firm has determined the following demand curves for each market: - **Brand Name Tires (PB)**: $ P_B = 70 - 0.0005Q_B $ - **Private Label Tires (PP)**: $ P_P = 20 - 0.0002Q_P $ *Quantities are measured in thousands per month and price refers to the wholesale price.* The firm is utilizing **price discrimination** by selling brand name and private label tires at different prices. **With Price Discrimination:** - The optimal price for brand name tires is $ \_\_\_\_ $, and the optimal quantity is $ \_\_\_\_ $. - The optimal price for private label tires is $ \_\_\_\_ $, and the optimal quantity is $ \_\_\_\_ $. - The firm's **TOTAL profit** is $ \_\_\_\_ $ (assuming fixed costs are zero). **Without Price Discrimination (Single Price Strategy):** - The optimal price is $ \_\_\_\_ $, and the optimal quantity is $ \_\_\_\_ $. - The firm's total profit in this scenario is approximately $ \_\_\_\_ $ (again, assuming fixed costs are zero). **Elasticity and Market Behavior:** When engaging in price discrimination, the firm sets a higher price in the brand name market because demand for brand name tires is less $ \_\_\_\_ $ compared to demand for private label tires. This means consumers of private label tires are more $ \_\_\_\_ $ to prices.

Expert Solution