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2. Demand across the two locations - After taking your managerial economics class, you realize that you can probably raise your profits by price discriminating by charging different prices in the two locations. You then break down sales across the two locations. In Laredo: You sold 960 burger meals per week at $10 and 600 meals at $13. In San Antonio: You sold 1440 meals per week at $10 and 1200 meals at $13 A. Using the two prices above, estimate your demand function in Laredo. What would demand be at the optimal price from Q1

2. Demand across the two locations - After taking your managerial economics class, you realize that you can probably raise your profits by price discriminating by charging different prices in the two locations. You then break down sales across the two locations. In Laredo: You sold 960 burger meals per week at $10 and 600 meals at $13. In San Antonio: You sold 1440 meals per week at $10 and 1200 meals at $13 A. Using the two prices above, estimate your demand function in Laredo. What would demand be at the optimal price from Q1

Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter5: Investment Decisions: Look Ahead And Reason Back
Section: Chapter Questions
Problem 5.6IP
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Given

Question #1

  1. Cost function C= 3000+6Q
  2. Q = 4400 - 200Q 
  3. Q= 1600 P = 14
  4. Profit= 22400-12600 = 9800

 

Question #2 

  1. Q=$480 - Laredo 
  2. Q=$1120 - SA

Question #3

  1. Ed=−1.25 - Laredo
  2.  Ed=−0.55 - SA
  3. 0.5<0.8− markup index it is charging less. - Laredo 
  4. 0.64<-1/-0.55--markup index it is charging less. - SA

Please answer question number #4 (A-C) For Laredo only 

2. Demand across the two locations - After taking your managerial economics class, you realize that you can probably raise your profits by price discriminating by charging different prices in the two locations. You then break down sales across the two locations. In Laredo: You sold 960 burger meals per week at $10 and 600 meals at $13. In San Antonio: You sold 1440 meals per week at $10 and 1200 meals at $13 3. A. Using the two prices above, estimate your demand function in Laredo. What would demand be at the optimal price from Q1 B. Using the two prices above, estimate your demand function in San Antonio. What would demand be at the optimal price from Q1? Elasticities across the two locations A. Calculate the point price elasticity of demand at the optimal price for Q1 (and quantity from Q2) in Laredo B. Calculate the point price elasticity of demand at the optimal price for Q1 (and quantity from Q2) in San Antonio C. Assuming that your marginal costs are $6, are you charging more, less, or exactly the optimal price in Laredo Hint: Calculate markup on price (Lerner's index) and compare it to - from earlier question Ed D. Assuming that your marginal costs are $6, are you charging more, less, or exactly the optimal price in San Antonio Hint: Calculate markup on price (Lerner's index) and compare to 1 Ed from earlier question E. Based on your analysis, describe how you should adjust prices in Laredo and San Antonio
Transcribed Image Text:2. Demand across the two locations - After taking your managerial economics class, you realize that you can probably raise your profits by price discriminating by charging different prices in the two locations. You then break down sales across the two locations. In Laredo: You sold 960 burger meals per week at $10 and 600 meals at $13. In San Antonio: You sold 1440 meals per week at $10 and 1200 meals at $13 3. A. Using the two prices above, estimate your demand function in Laredo. What would demand be at the optimal price from Q1 B. Using the two prices above, estimate your demand function in San Antonio. What would demand be at the optimal price from Q1? Elasticities across the two locations A. Calculate the point price elasticity of demand at the optimal price for Q1 (and quantity from Q2) in Laredo B. Calculate the point price elasticity of demand at the optimal price for Q1 (and quantity from Q2) in San Antonio C. Assuming that your marginal costs are $6, are you charging more, less, or exactly the optimal price in Laredo Hint: Calculate markup on price (Lerner's index) and compare it to - from earlier question Ed D. Assuming that your marginal costs are $6, are you charging more, less, or exactly the optimal price in San Antonio Hint: Calculate markup on price (Lerner's index) and compare to 1 Ed from earlier question E. Based on your analysis, describe how you should adjust prices in Laredo and San Antonio
4. Optimal price in Laredo You decide to charge different prices in the two locations. To do this, you decide to use the demand functions you estimated in Q2 to calculate separate optimal prices in the two locations. For your costs in Laredo, you have fixed costs of $1000 per week. In addition, it costs you six dollars per burger in variable costs (ingredients, labor etc.) A. What is your cost function in Laredo? B. Using the demand function from Q2, calculate the profit maximizing price and quantity. Is the new price higher or lower than the price if you do not price discriminate? Is this consistent with your answer from Q3 C. What are your profits in Laredo?
Transcribed Image Text:4. Optimal price in Laredo You decide to charge different prices in the two locations. To do this, you decide to use the demand functions you estimated in Q2 to calculate separate optimal prices in the two locations. For your costs in Laredo, you have fixed costs of $1000 per week. In addition, it costs you six dollars per burger in variable costs (ingredients, labor etc.) A. What is your cost function in Laredo? B. Using the demand function from Q2, calculate the profit maximizing price and quantity. Is the new price higher or lower than the price if you do not price discriminate? Is this consistent with your answer from Q3 C. What are your profits in Laredo?
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