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- Provide at least three examples and discuss, illustrating how firms can use discounts while avoiding giving rebates to consumers with a high willingness to pay.3.- (From problem 5.3 in the textbook) A nightclub manager realizes that demand for drinks is more elastic among students, and is trying to determine the optimal pricing schedule. Specifically, he estimates the following average demands: • Under 25: qr = 18 − 5p • Over 25: q = 10 − 2p The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the nightclub $2 each. (c) If the nightclub cannot charge according to whether the customer is a student or not, but can set a (common) cover charge and a (common) price per drink (which we assume equal to $2), what two-part tariff will it choose? (d) If the nightclub can set a separate cover charge and price per drink for each group, what two-part pricing schemes will it choose?In the used-car market in Sydney there are two types of cars: bad cars and good cars. Owners of the cars know what sort of car they have, but to potential buyer all cars look alike (until after they have already been bought). Owners of bad cars are willing to sell their cars for $1000. Owners of good cars are willing to sell their cars for $1600. Buyers have a maximum willingness to pay for a bad car of $1400 and a maximum willingness to pay for a good car of $2400. Buyers are risk neutral, so they maximise their expected return when considering their purchase. What is the minimum proportion (q*) of good cars in the market such that the owners of the good cars are still willing to sell their cars? A. q* = 0.2 B. None of the other answers are correct. C. a* = 0.4 D. g* = 0.8 E. q* = 0.6
- In a small college town there is only one movie theater. In a given month, if the theater is open, the owners have to pay a fixed amount of $6,000 for the films, ushers, etc., regardless of how many people come to the movies. For simplicity, assume that if the theater is closed, its costs are zero. The demand function for movie tickets in the town is characterized by ??= 45−QT/60 a. Find the profit-maximizing price and quantity of movie tickets, and indicate them on the graph above. How much would the theater make in profits? b. Suppose the local government implements a property tax, so that each month the theater now must pay a lump sum tax of $700. What will be the price and quantity of movie tickets under this tax?An increase in the demand of face shield raises the quantity of face shields demanded, but not the quantity supplied' Is the statement true or false?Carefully explain whether each of the following statements is true, false or uncertain. a.) Because of their monopoly power, monopolists always set the highest price in order to maximize their profits. b.) Accounting profit tends to be larger than economic profit. c.) As Uncle Bob is a rational person, he will always hire an additional worker as long as this worker brings in a positive amount of revenue. d.) A patent or copyright reduce a firm’s or a person’s monopoly power in a market. f.) In a perfectly competitive market, both buyers and sellers are price takers. g.) A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run. h.) For a price-taking firm, average revenue equals to marginal revenue. i.) In a perfectly competitive market, firms that raise their prices above market price are typically rewarded with larger profits.
- The Puritan Wellness Hotel sits next to the natural springs in the Silver Forest. Local firm Refectio Deorum (RD) bottles mineral water only from this source. Guests of the Puritan can bathe in the springs, and are charged for the privilege. The inverse demand function is P = 50 - Q, where Q is the number of daily bathers who purchase the pass to the springs. The Puritan incurs no costs when its guests use the springs, but RD estimates that every bather adds $20 in daily filtering expenses. What is the privately optimal number of bathing passes to sell for the Puritan, and what is the socially optimal number of passes?A. Privately optimal is 25 passes; socially optimal is 15 passes.B. Privately optimal is 40 passes; socially optimal is 75 passes.C. Privately optimal is 100 passes; socially optimal is not to bathe at all.D. The optimal number of hours, privately as well as socially, is 50.Illustrate and discuss the theory and application of “Peak Load” pricing strategy.Profit maximization and loss minimization BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot price discriminate; that is, it sells its beer at the same price per can to all customers. The following graph shows the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) for beer in this market. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. Suppose that BYOB charges $2.75 per can. Your friend Rajiv says that since BYOB is a monopoly with market power, it should charge a higher price of $3.00 per can because this will increase BYOB’s profit. Complete the…
- . Profit maximization and loss minimization BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot price discriminate; that is, it sells its beer at the same price per can to all customers. The following graph shows the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) for beer in this market. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. Suppose that BYOB charges $2.50 per can. Your friend Clancy says that since BYOB is a monopoly with market power, it should charge a higher price of $3.00 per can because this will increase BYOB’s profit. Complete the…Cathy sells hand sanitizers in a small town. Daily sanitizer demand equal Q(P)=300-25P Where Q is the market output and p is market price Cost of bottling and distributing is C(q)=4q Suppose cathy is the only seller of sanitizer, what price should cathy charge? What profit does she earn? Suppose dom also produces hand sanitizer in town, and cathy and domm both simultaneously choose price of hand sanitizer, consumers have perfect information. Derive the reaction functions for cathy and domm What is the Nash equilibrium for this market?Suppose that 2,000 people are interested in attending ElvisLand. Once a person arrives at ElvisLand, his or her demand for rides is given by x = max{ 5 – p, 0}, where p is the price per ride. There is a constant marginal cost of $2 for providing a ride at ElvisLand. If ElvisLand charges a profit-maximizing two-part tariff, with one price for admission to ElvisLand and another price per ride for those who get in. How much should it charge per ride and how much for admission? Correct answer is $2 per ride and $4.50 per admission, how does one solve this problem?
