5) Double Take Beauty Double Take Beauty is a spa in Provo, UT that offers single needle tattoos done by its founder, Sadie Flores. Suppose Sadie charges about $400 per tattoo on average. The marginal cost of each tattoo is about $100. She is getting better at tattooing and the tattoos are becoming more popular with customers, so she is considering raising the price to $500 per tattoo. What percentage of customers must be retained to ensure that the price increase is profitable? Note: It's conventional when not calculating elasticities to measure percentage changes relative to their initial value (%AX = new value of X-old value of X old value of X 25% 18% 84% 66.67% 75%
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- Suppose you run a marketing survey and find you have two types of customers high-value customers willing to pay 16 and low-va consumers willing to pay just 10. Your survey tells you that there are equal numbers of high- and low- value customers. Obviously , have two possible options price high (16) and sell only to the high value group, or price low (10) and sell to everyoneThe costs incurred is 5 per unit and sales only happen to high -value consumers 50 % of the timeWhich price should you choose ? Select the correct response price high price low it depends price both high and low1. Individual Problems 14-1 Suppose Mattel, the producer of Barbie dolls and accessories (sold separately), has two types of consumers who purchase its dolls: low-value consumers and high-value consumers. Each of the low-value consumers tends to purchase one doll and one accessory, with a total willingness to pay of $48. Each of the high-value consumers buys one doll and two accessories and is willing to pay $91 in total. Mattel is currently considering two pricing strategies: • Strategy 1: Sell each doll for $24 and each accessory for $24 • Strategy 2: Sell each doll for $5 and each accessory for $43 In the following table, indicate the revenue for a low-value and a high-value customer under strategy 1 and strategy 2. Then, assuming each strategy is applied to one low-value and one high-value customer, indicate the total revenue for each strategy. Revenue from Low-Value Customers Revenue from High-Value Customers Total Revenue from Strategy $48…3.There are two competing Internet-based providers of medical information suitable for patients. ProPatient currently charges $150 per year to subscribers of its service,which helps patients learn more about their medical conditions. Its competitor, AskUs Health, currently charges $125 for a similar service. The current level of advertising by ProPatient is $2,500,000. ProPatient has tracked its volume of subscribers as a function of its price, the price of AskUs services, and of its own marketing expenditures designed to promote the service. The marketing department at ProPatient estimated its demand relationship based on these data. Here is the result: QP= 120,000 -900PP+ 400PA+.02M where QP= quantity of subscribers to ProPatient PP = price charged by ProPatient PA= price charged by AskUs Health MP= Marketing expenditures by ProPatient (all values of the independent variables are in dollars)ProPatient’s fixed cost to establish and maintain the business is $10,000,000 plus marketing…
- 3.There are two competing Internet-based providers of medical information suitable for patients. ProPatient currently charges $150 per year to subscribers of its service,which helps patients learn more about their medical conditions. Its competitor, AskUs Health, currently charges $125 for a similar service. The current level of advertising by ProPatient is $2,500,000. ProPatient has tracked its volume of subscribers as a function of its price, the price of AskUs services, and of its own marketing expenditures designed to promote the service. The marketing department at ProPatient estimated its demand relationship based on these data. Here is the result: QP= 120,000 -900PP+ 400PA+.02M where QP= quantity of subscribers to ProPatient PP = price charged by ProPatient PA= price charged by AskUs Health MP= Marketing expenditures by ProPatient (all values of the independent variables are in dollars)ProPatient’s fixed cost to establish and maintain the business is $10,000,000 plus marketing…1. Hertz and other car rental companies charge much more to rent luxury cars such as Ferraris andBentleys than to rent compact cars such as the Toyota Yaris or Chevrolet Sonic. Is this pricediscrimination? Explain 2. A Grocery store issued frequent-buyer cards to willing customers and collected information about their purchases. How should a manager use this information to offer customized discount coupons to individuals?1. TopGames buys the rights to sell a certain video game title worldwide. top games pay $400,000 for this right and the marginal cost of providing the video game download is zero. TopGames’ economist realizes they have two groups of customers: the 2,000 hard-core fans of this game who will pay up to $150 a year to be able to play this game; and the 10,000 casual gamers who will pay up to $50 a year to play this game. If TopGames can NOT price discriminate, what is its profit-maximizing price? What is its profit? a. Price = $50; Profit = negative $100,000 b. Price = $50; Profit = $300,000 c. Price = $150; Profit = $100,000 d. Price = $150; Profit = $500,0002. TopGames buys the rights to sell a certain video game title worldwide. top games pay $400,000 for this right and the marginal cost of providing the video game download is zero. TopGames’ economist realizes they have two groups of customers: the 2,000 hard-core fans of this game who will pay up to $150 a year to be able to play this…
- 1 Assume there are two firms in a Hoteling Linear city. One firm is located at zero and the other at one. Assume the following utility equations: U0=v−p−tx+μ, U1=v−pn−t(1−x). Where U0 is utility from buying the good from the firm located at zero, p is the price for the firm at point zero, t is the travel cost and μ is bonus utility because the firm at point zero makes people a little bit happier. U1 is utility from buying the good from the firm at point one and pn is the price. Part a) Find the indifferent consumer8. Suppose that a sales force has found 20 qualified buyers and has begun the sales process. The sales manager estimates that 10% eventually proceeds to make a purchase. Assume that a professional company offers three services, priced at $2,000, $7,000 and $20,000, respectively. Based on past results or the sales manager’s estimates, you project that 60% of first-time buyers will choose the cheapest option, 30% will choose the middle option and 10% will choose the most expensive option. a. Calculate the size of a likely sale for any prospect that makes a purchase. b. How many qualified buyers must be found in order for the company to generate $80,000 in sales in a given period? Your final answer must be rounded to the nearest whole number.4.7. Price competition with search costs. Twenty-five different stores sell the same product in a given area to a population of 2,000 consumers. Consumers are equally likely to first visit any of the 25 stores. Half of the consumers have no search costs and purchase at the lowest price so long as it is lower than $45. The other half is willing to buy one unit of the product up to a maximum of $70 and must incur a cost of $44 in order to find out about the prices charged by other stores. Each store can sell up to 90 units and has a unit cost of $25. (a) Show that, in equilibrium, there exist at most two different prices. (b) Show that, if there exist two different equilibrium prices, then the higher price must be 70. (c) Show that the following is an equilibrium:five firms set a price of 70 and the remaining 20 firms set a price of 45.
- 1- You own a hamburger franchise and are planning to shut down operations for the day, but you are left with 12 buns, 18 defrosted beef patties, and 14 opened cheese slices. Rather than throw them out, you decide to use them to make burgers that you will sell at a discount. Plain burgers each require 1 beef patty and 1 bun, double cheeseburgers each require 2 beef patties, 1 bun, and 2 slices of cheese, while regular cheeseburgers each require 1 beef patty, 1 bun, and 1 slice of cheese. How many of each should you make? plain burgers double cheeseburgers regular cheeseburgers 2- The Enormous State University History Department offers three courses—Ancient, Medieval, and Modern History—and the chairperson is trying to decide how many sections of each to offer this semester. The department is allowed to offer 48 sections total, there are 5,400 students who would like to take a course, and there are 65 professors to teach them. Sections of Ancient History have 100 students each,…1. Tying as a Bundling Strategy Ginnie's Gym Refreshment Bar Hydration Power Drink Satisfying Smoothie Early 7.00 5.00 Late 6.00 10.00 Ginnie has observed that her signature item, the Satisfying Smoothie, is very popular with the late evening crowd at the gym, but it is not so popular with the early crowd. The early and late crowds have only slightly different preferences for her Hydration Power Drink. The gym has a very large clientele, and Ginnie can’t always tell who has the late-crowd preference and who has the early-crowd preference. In her graduate MBA class, they have been studying tying as a bundling strategy. Ginnie asked her professor, “Would bundling work for my business?” Her professor said, “I think you told me that the marginal costs for you two products differ significantly, so first, I would recommend that you look at the contribution margin for each. Sometimes, low prices may be more profitable and sometimes high prices…Exercise 3: merger example Algoma Steel Inc. and Stelco Steel Inc. Merger? Suppose you work at the Bureau and your task is to assess a proposed merger between Algoma Steel Inc. and Stelco Steel Inc. For simplicity, these are the only two firms in Canada. The cost of this merger is that the two firms will become one joint firm, or the duopolists become the monopolist. This is likely to limit consumer choices and the equilibrium price is likely to rise. However, this merger is likely to increase economies of scale, or production cost will fall. From existing studies you know the following information, and P is the price per ton of steel and Q is the number of tons of steel. Demand for steel: P = 1,800 - Q Marginal revenue: MR = 1,800 - 2Q Supply of steel: MC = ATC = 600, identical across the two firms. Case #1: Before Merger - Cournot duopoly - the government does not intervene The total surplus (TS), defined as the sum of consumer surplus and producer surplus, is equal to…