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) PP = 20 - 0.0002QP (private label). Quantities are measured in thousands per month and price refers to the wholesale price. a) By selling the brand name and private label tires at different prices, is the firm is using first, second, or third degree price discrimination? b) With price discrimination, the firm's TOTAL profit is _______________ (assume fixed costs are zero). c) If the firm cannot price discriminate and must charge a single price in the market, the optimal price is and the optimal quantity is ________________. The firm's total profit in this case is approximately ________________(again, assume fixed costs are zero). d) When price discriminating, the firm charges a higher price in the brand name market because demand for brand name tires is more elastic/inelastic (pick one) than demand for private label tires. That is, consumers of private label tires are more sensitive/insensitive (pick one) to prices.
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
PB = 70 - 0.0005QB (brand name)
PP = 20 - 0.0002QP (private label).
Quantities are measured in thousands per month and
a) By selling the brand name and private label tires at different prices, is the firm is using first, second, or third degree
b) With price discrimination, the firm's TOTAL profit is _______________ (assume fixed costs are zero).
c) If the firm cannot price discriminate and must charge a single price in the market, the optimal price is and the optimal quantity is ________________. The firm's total profit in this case is approximately ________________(again, assume fixed costs are zero).
d) When price discriminating, the firm charges a higher price in the brand name market because demand for brand name tires is more elastic/inelastic (pick one) than demand for private label tires. That is, consumers of private label tires are more sensitive/insensitive (pick one) to prices.
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