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- Genovia has experienced exceptional growth in recent years. Its GDP per capita (orIncome) has increased from around $30,000 to $50,000 in last 5 years. Over theperiod quantity demanded of personal cars has increased from 450,000 units per yearto 600,000 units. Quantity demanded of public transport, however, has declined from10,000 buses to 7,000 buses. Calculate income elasticity of demand and tell whichproduct is a normal good and which one is inferior.List the characteristics of products that haveinelastic demand, and give several examples ofsuch products.Describe the difference between an everyday low price strategy (EDLP) and a high/low price strategy
- OHaganBooks.com has tried selling novel through o'Books at a variety of prices, with the following results:GameZone, a video games store, is considering the best way to price two new games – a first-person shooter (FPS) and a racing game. There are four types of consumers that might buy the games with roughly equal numbers of each type, and their willingness to pay (WTP) for each game is detailed in the table below (assume that the willingness-to-pay for a second game of the same type is zero). How should Gamezone price the two games separately to maximise revenue? How should Gamezone price a bundle of both games to maximise revenue? Is there an alternative (involving bundling) that generates more revenue than either single prices or a bundle alone? Under what condition/s is bundling likely to increase profits for a firm? Consumer Type WTP for FPS game WTP for racing game A $120 $70 B $70 $120 C $160 $10 D $10 $160Case study 1Oil pump price war Based on an article from The Telegraph, 10 July 2009 “Asda, the supermarket chain, sparked a potential petrol price war yesterday as it cut its fuel prices to 99.9p per litre, declaring there was “little justification” to charge more than £1 at the pumps.The reduction was made on petrol and diesel, representing an average cut of 2p and 1p respectively, at all the company’s 176 forecourts.The move was quickly followed by a pledge from Morrisons that it too would sell petrol for under £1 a litre, signalling the start of a price war. BP said it would cut prices by around 2p at many of its sites, and would continue to respond to local competition.A spokesman for the AA said: “Asda’s price drop marks the start of a new price war. Others will have no choice but to follow.”Asda’s Commercial director David Miles said: “There is no justification for any major retailer selling fuel above £1 per litre – that is why we are delighted to be able to reduce both petrol…
- Draw pictures to describe how consumer surplus is changed by sucessful third-degree price discrimination. Please provide with explanationCompare Elixir’s profit maximizing price with the marginal cost of producing the profit-maximizing output. At the profit-maximizing price, is the demand for Elixir water inelastic or elasticSuppose an airline sells air tickets to two types of customer – business travelersand vacation travelers. Their estimated demand elasticities are -2.5 and -4.0respectively.Suppose the marginal cost is constant at $240, and the services provided to thetwo types of customer are similar. Calculate the fares the airline should charge on the air tickets sold to therespective types of customers. Show your calculations.
- 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 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 $4 each. (a) Calculate the market demand.Amazon.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Amazon.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount. Group A (sales per week) Group B (sales per week) Vol. of sales before 10% discount 1.55M 1.50M Vol. of sales after 10% discount 1.65M 1.70M Using the midpoint method, calculate the price elasticities of demand for group A and group B. Explain how the discount will affect total revenue from each group. Suppose Amazon.com knows which group each customer belongs to when he logs on and can choose whether or not to offer the 10% discount. If Amazon.com wants to increase its total revenue, should discounts be offered to group A or to group B, to neither group, or to both groups?Suppose an airline sells air tickets to two types of customer – business travelersand vacation travelers. Their estimated demand elasticities are -2.5 and -4.0respectively.Suppose the marginal cost is constant at $240, and the services provided to thetwo types of customer are similar.a. Based on the given information, explain with TWO practical reasons whether theairline should charge a higher price on business travelers or vocational travelers.Explain without calculation.