3. What is the marginal cost of producing the high-quality product? 4. What is the marginal cost of producing the fair-quality product? 5. Given your estimates of the demand for each product, what is the optimal amount of each to produce and what is the optimal price to charge for each? 6. Given your answers to question 5 above, does this strategy make positive, zero, or negative profits (including the fixed costs of development)? 7. To think about: If you just produced one product that was demanded by both sets of customers, what do you think would happen to your profits? Explain your answer.
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- One of the oldest principles of marketing is that sellers may sell features, but buyers essentially buy benefits. This is a distinction sometimes lost on technology ledorganizations, and the service sector is no exception. Recent experience of the UK’s largest telecommunications company, Della’s, illustrates how crucial it is to see service offers in terms of the benefits they bring to customers. The company was aware of extensive research which had found high levels of confusion among purchasers of mobile phones, with a seemingly infinite permutation of features and prices. With four main networks to choose from, dozens of tariffs and hundreds of handsets, it is easy to see why buyers sought a way of simplifying their buying process. Throughout the 1990s, Della’s had positioned its UK network as superior technically to its competitors. Advertising focused on high coverage rates and call reliability.Della’s was the UK's most popular mobile phone operator, with almost eight million…One-Jet Airlines has 100 customers and is the only airline servicing two small cities in the Midwest. Half of One-Jet’s customers are leisure travelers and half are business travelers. Business travelers are willing to pay $600 for a ticket that does not require a Saturday stayover and $100 for a ticket that requires a Saturday stayover. Leisure travelers are flexible, willing to pay $300 for a ticket regardless of whether it requires a Saturday stayover. One-Jet is unable to determine whether a particular customer is a business or leisure traveler. Consequently, the airline’s current pricing policy is to charge $300 for all tickets. As a pricing consultant for One-Jet Airlines, can you devise a self-selection mechanism that will permit One-Jet to increase revenues and continue to serve all its customers? Explain.A monopolist sells its product in two di§erent countries. The demand in country 1 is Q1 = 50-0.5P1, whereas the demand in country 2 is Q2 = 25-0.25P2. The firm's cost function is C(Q)=10+0.5Q2, where Q = Q1 + Q2.a) Calculate the amount of the product that the profit maximizing monopolist should sell in each country. Q1*=?, Q2*=?b) The determinantal test suggests that the firm's profit function (which one is correct) is locally concave around the critical point, but not elsewhere is globally concave is locally convex around the critical point, but not elsewhere is globally convex has a saddle point at the critical point
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- Robert sold used cars, but he had little or no knowledge with respect to the technical aspects of any of the vehicles that he sold. Ray was seeking to buy a Honda Civic and Robert gave his opinion as to the speed of the car and its durability. Ray subsequently finalized the purchase and took control of the car. Two weeks after the purchase, the Honda Civic broke down and required extensive mechanical repairs. Ray is angry and is of the view that Robert misrepresented the condition of the car when he sold it. Ray is of the opinion that as a Used Car Salesmen, Robert should have known that the car was indeed in poor mechanical condition. Ray knows that you are studying Business Law at UWI Open Campus and sought your advice on the matter. Please advise Ray.A government study found that people who eat chocolate frequently weighless than people who don’t. Researchers questioned 1000 individuals fromCalifornia between the ages of 20 and 85 about their eating habits, andmeasured their weight and height. On average, participants ate chocolatetwice a week and had a body mass index (BMI) of 28. There was anobserved difference of five to seven pounds in weight between those whoate chocolate five times a week and those who did not eat any chocolate atall, with the chocolate eaters weighing less on average. Frequent chocolateeaters also consumed more calories, on average, than people who consumedless chocolate. Based on this summary, would you recommend thatAmerican’s who do not presently eat chocolate, consider eating chocolateup to five times a week if they want to lose weight? Why or why not?Explain.The residential division of Prism’s high-speed Internet service uses one advertising agency, while its commercial division uses another. Two analysts, Andy and Brad, are asked to test and evaluate the effectiveness of the two agencies. Andy proposes an A/B test that compares the click-through rates per ad for the two agencies. Brad proposes a difference-in-dif-ference test in which the budgets for both agencies are increased by 50%, and the percent change in click-through rates is compared. What might be the sources of selection bias for the two proposals? Which is likely to be smaller?