ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Chapter 13, Problem 1.3P
To determine
The investment at varying expected
Concept Introduction:
Expected Return- The expected value of the potential outcomes or the expected profit or loss with associated known expected rates of return is the Expected Return from an investment
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11. (Marginal Analysis) The owner of a small pizzeria is decid-
ing whether to increase the radius of its delivery area by
one mile. What considerations must be taken into account
if such a decision is to contribute to profitability?
7. (10 points) Joe has moved to a small town with only one golf course. His demand curve is P =
120-2Q where Q is the number of rounds of golf he plays per year. The manager of the golf
course offers Joe a special deal, where Joe pays an annual membership fee and can play as many
rounds of golf as he wants to at $20 per round. The golf course's Marginal Cost is $20.
P
$120
$20
demand curve is P = 120-2Q
MC-AC
Q*
(a) How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain.
(b) If the golf course wishes to implement a two-part pricing model, what membership fee will
maximize revenue for the golf course? Please show your calculations.
(c) Would someone who just occasionally plays golf (perhaps 1 or 2 rounds once every 2
months) prefer two-part pricing as given above, or would they prefer to pay a price of $100 per
round without any membership fee? Please explain.
8. (10 points) Assume that you live on the second floor of an apartment building and one day…
(d) Suppose the demand function is p = 20 = x. At what price or output is the revenue maximum? What is the
magnitude of the maximum revenue? Graph the revenue function and the marginal revenue function. Suppose that MC
= 0; what is the profit - maximizing price and output? IMPORTANT NOTE: PLEASE DRAW THE REVENUE FUNCTION
AND THE MARGINAL REVENUE FUNCTION IN A CHART. *** not an illustrating explaing how the chart will look like. I
want the actual chart drawn. please.
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