Gen Combo Managerial Economics & Business Strategy; Connect Access Card
9th Edition
ISBN: 9781260044294
Author: Baye
Publisher: MCG
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Textbook Question
Chapter 12, Problem 3CACQ
Your store sells an item desired by a consumer. The consumer is using an optimal search strategy; the accompanying graph shows the consumer’s expected benefits and costs of searching for a lower
- What is the consumer’s reservation price?
- If your price is $3 and the consumer visits your store, will she purchase the item or continue to search? Explain.
- Suppose the consumer’s cost of each search rises to $16. What is the highest price you can charge and still sell the item to the consumer if she visits your store?
- Suppose the consumer’s cost of each search falls to $2. If the consumer finds a store charging $3, will she purchase at that price or continue to search?
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Use the following table to work Problems 5 to 9.
Minnie's Mineral Springs, a single-price monopoly,
faces the market demand schedule:
Price
Quantity demanded
(dollars per bottle)
10
8
(bottles per hour)
0
1
6
2
4
3
2
4
0
5
5. a. Calculate Minnie's total revenue schedule.
b. Calculate its marginal revenue schedule.
6. a. Draw a graph of the market demand curve
and Minnie's marginal revenue curve.
b. Why is Minnie's marginal revenue less than
the price?
7. a. At what price is Minnie's total revenue maxi-
mized?
b. Over what range of prices is the demand for
water from Minnie's Mineral Springs elastic?
8. Why will Minnie not produce a quantity at which
the market demand for water is inelastic?
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