Economics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280595
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Chapter 13, Problem 2DQ
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Suppose that a 20 percent cut in the price of coast-to-coast telephone calls brings in so much new business that it permits a long-distance telephone company to cut its charges for service from Chicago to St. Louis, but only by 2 percent. Is this practice equitable? Is it a good idea or a bad one?
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What type of pricing strategies are airlines using? Is it ethical for airlines to charge baggage fees?
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Economics: Principles and Policy (MindTap Course List)
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- Any charge that is not airfare is referred to as ancillary revenue for airlines—and they are cleaning up on it to the tune of $20 billion a year. While consumers can avoid some fees, such as those for food, preferred seating, and wi-fi, the majority can’t avoid baggage fees. What type of pricing strategies are airlines using? Is it ethical for airlines to charge baggage fees?arrow_forwardBased on the demand curve you showed in question 2 above, what is the minimum and maximum price you can charge for your product? This does not mean that you will, in fact, charge the minimum or maximum price. It simply gives you an idea of the range of prices your demand curve allows you to charge. What are the quantities corresponding to the minimum and maximum price? Please show your work and explain how you calculated these prices and quantities. The demand curve I showed in question 2: P-16-4Qarrow_forwardWe learned that in a competitive market equilibrium the Marginal Cost equals the Price, as Marginal Revenue is the same as Price for a perfectly competitive seller. Now, how does the Marginal Cost compare to Price at the monopolist's profit maximizing output and price combination? If Price is generally seen as the monetized Marginal Benefit to consumers of the product and Price exceeds Marginal Cost, then this is allocatively inefficient, as Marginal Benefit exceeds Marginal Cost.arrow_forward
- Each consumer has the following demand for annual visits to Planet Fitness: Q = 100 - P, where Q is the number of visits to Planet Fitness per year and P is the price per visit. In western Maryland, Planet Fitness has a monopoly on the gym market in the area. If the marginal cost of serving each customer is $10 per visit, what is the optimal two-part tariff that Planet Fitness could charge each customer? Annual fee = $4,050; P = $10 for each visit Annual fee = $5,000; P = $0 for each visit. Annual fee = $4,050; P = $0 for each visit. Annual fee = $5,000; P = $10 for each visit.arrow_forwardExplain Briefly with zero plagiarism In the selling process or in negotiations, who typically has the upper hand, the buyer or the seller?arrow_forwardEach consumer has the following demand for annual visits to Planet Fitness: Q = 200 - P (or P = 200 - Q), where Q is the number of visits to Planet Fitness per year and P is the price per visit. In western Maryland, Planet Fitness has a monopoly on the gym market in the area. If the marginal cost of serving each customer is $10 per visit, what is the optimal two-part tariff that Planet Fitness could charge each customer? Annual fee = $18,050; P = $0 for each visit. Annual fee = $20,000; P = $0 for each visit. Annual fee = $18,050; P = $10 for each visit. Annual fee = $20,000; P = $10 for each visit.arrow_forward
- Consider the market for high-performance digital cameras. Suppose that initially after such cameras are introduced, demand is D,. One year later, after the first group of 800- 750- 700- 650- consumers has purchased the product, demand becomes D2. 600- If the electronics company engages in intertemporal price discrimination, then it should initially charge $ 700 for its digital camera. (Enter a numeric response using an integer.) 550- 500- 450- 400- MC After one year, the company should charge a price of $ 575. 350- 300- Assuming no fixed costs, this results in total profits (initially and one year later combined) of $ 250- 200- 150- 100- 50- MR. MR, 0- 100 200 300 400 500 600 700 800 900 1000 Quantityarrow_forwardThe figure to the right shows the market demand for electricity and the average total cost and marginal cost of producing electricity for a utility company. Suppose the utility company is a regulated natural monopoly. If government regulators want to achieve economic efficiency, then they will regulate a price of $ —— per kilowatt hour. (Enter a numeric response using a real number rounded to two decimal places.)arrow_forwardGive typing answer with explanation and conclusion A monopolist has a demand curve given by P = 88 − Q and a total cost curve given by TC = 34 + Q2. The associated marginal cost curve is MC = 2Q. Suppose the monopolist also has access to a foreign market in which he can sell whatever quantity he chooses at a constant price of 60. How much will he sell in the foreign market? What will his new quantity and price be in the original market?arrow_forward
- Assume that consumers value a high quality piece of furniture at 5000 and a bad quality one at 3000. Assume that producing a bad quality piece of furniture costs the manufacturer 3500 and producing a high quality one costs 5000. . A) If the manufacturer is a monopolist, what will be the equilibrium sales prices on this market? B) How would your answer change, if the cost of producing a low quality piece of furniture went to 2900?arrow_forwardHow can we charge different prices to different segments without the customer feeling cheated? How can we even charge the same customer different prices at different times, contexts, and /or occasions, and at the same time be seen as fair? Select a service organization of your choice and find out what its pricing policies and methods are. In what respects are they similar to or different from what has been discussed in this chapterarrow_forwardExercise A.2. Suppose a company that is the only producer in a given sector of activity and can produce with an average and marginal cost of €10. The company faces a market demand curve given by Q=100-P. a) What is the price range in which this monopolist will operate? Why? b) Get the amount you will produce and the sale price you will charge. Calculate its benefits? Represent graphically.arrow_forward
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