Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 7, Problem 7.6IP
To determine
The decision to open a shared facility or two separated facilities.
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Suppose you come home from having earned your degree at CSUEB. Your parents own a localchain of fitness clubs that have a great reputation. Your father uses cost-plus pricing, and at themoment he is charging $200 for an annual membership, and is currently selling 800 memberships.Your parents are quite happy with their current markup above average costs
You suspect that perhaps they could be doing better and be more profitable. After consulting with the club’s manager, you learn that the cost function for annual memberships is given by c(Q)=1000+20Q+(1/20)Q2 .Further, they tell you that the own price elasticity of demand is approximately -2.5
Are your parents choosing a membership price that is maximizing profit? If not, what would yousuggest – increase the price or reduce the price? Explain
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Charles Lackey operates a bakery in Idaho Falls, Idaho. Because of its excellent product and excellent location, demand has increased by 45% in the last year. On far too many occasions, customers have not been able to purchase the bread of their choice. Because of the size of the store, no new ovens can be added. At a staff meeting, one employee suggested ways to load the ovens differently so that more loaves of bread can be baked at one time. This new process will require that the ovens be loaded by hand, requiring additional manpower. This is the only production change that will be made in order to meet the increased
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Chapter 7 Solutions
Managerial Economics: A Problem Solving Approach
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