EXAM 2 SPRING 2022

.pdf

School

University of Wisconsin, Madison *

*We aren’t endorsed by this school

Course

732

Subject

Economics

Date

Feb 20, 2024

Type

pdf

Pages

10

Uploaded by KidTarsier2631

Report
OTM 732: Economics for Managers EXAM #2 THURSDSAY, APRIL 7, 2022 Printed Name: __________________________________ RULES: - Your answers on this exam will represent your work and only your work. - You may not use textbooks, materials from class, content online, assistance from others, or any other help on this exam. - You MAY use a calculator for arithmetic calculations. On my honor, I agree to abide by these rules. Signature: ______________________________________ There are 5 questions for a total of 100 points.
1) (25 points) You make delicious cupcakes that you mail to customers across the country. Your cupcakes are so unique and special that you have a great deal of pricing power. Your customers have identical demand curves for your cupcakes, and a representative customer’s demand curve is shown below. (It’s not needed, but the demand curve equation is P=5-0.2Q or Q=25-5P.) Suppose your MC=$1/cupcake, whether you produce lots or just a few cupcakes. To keep things simple, suppose there are no fixed costs, so FC=0. a) (9 points) Acting as a monopolist, show the standard pricing analysis on the graph below that identifies your profit-mamximing price and quantity for your representative customer. Shade areas representing your profit and CS. (PS and profit are the same here since FC=0). b) (8 points) Suppose you offer a quantity discount: first 10 cupcakes at $3 each and any cupcakes over 10 are offered at a discounted price. What discount price will maximize your profit? Show this quantity discount arrangement on your graph and shade areas representing your profit and CS.
c) (8 points) Now you have another idea – to sell only packages of 20 cupcakes. What is your profit-maximing price for a 20-pack of cupcakes? What is the resulting profit? Shade areas below representing your price and profit answers.
2) (10 points) a) (4 points) A “menu” is a list of items for sale and their prices. Use the “menu” concept to explain the difference between second-degree price discrimination and third-degree price discrimination. b) (6 points) Provide a real-life example of second-degree price discrimination and explain why it is second-degree price discrimination. Provide a real-life example of third-degree price discrimination and explain why it is third-degree price discrimination. (Make sure that your explanations line up with your “menu” explanation in part (a).)
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help