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- Nile.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Nile.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 Group B(sales per week) (sales per week) Volume of sales beforethe 10% discount 1.55 million 1.50 million Volume of sales afterthe 10% discount 1.65 million 1.70 million A. Using the midpoint method, calculate the price elasticities of demand for group A and group B. B. Explain how the discount will affect total revenue from each group.C. Suppose Nile.com knows which group each customer belongs to when he or she logs on and can choose whether or not to offer the 10% discount. If Nile.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?17.Which of the following statements about monopolistically competition is CORRECT: A. Earn abnormal profits in the long run. B. Always make profit in the short run because of monopoly power. C. Charge a price equals to minimum average total cost in the long run. D. In the long run, produce at price greater than marginal cost 18.(a) Explain whether each of the following statements applies to microeconomics or macroeconomics: (i) The jobless rate in the housing industry has increased substantially in 2020. (ii) A national car rental company has shut down due to Covid-19. (iii) The inflation rate in Malaysia has decreased by 2% last year. (b) Discuss how a market system and a command economy try to cope with economic scarcity.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?
- 2. You are the Southeastern Michigan regional manager at Coca-Cola, responsible forproduction and pricing in the Metro Detroit area. Your primary competitor is Pepsi. The marketresearch team at Coca-Cola is thinking about launching a new product, Orange Vanilla Coke, toboost the brand. The cost function to produce a 12-pack of 12 fl. oz. cans of Orange VanillaCoke is C(qcoke) = 0.25qcoke and the market research team has estimated inverse market demandfor a 12-pack of this new “pop” in Southeastern Michigan to be P = 10.25 – 0.00025Q. a. Assuming Pepsi decides not to produce a similar product, allowing Coca-Cola to maintainmonopoly power in the market for orange vanilla cola, what price and quantity will youchoose to maximize profit? How much profit does Coca-Cola earn?b. What price and quantity you would choose to maximize profit if Pepsi spies discover yourproduct before launch, allowing Pepsi to produce and launch an identical product at the sametime. For your answer, assume the cost…Case 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…List the characteristics of products that haveinelastic demand, and give several examples ofsuch products.
- UCOM is able to purchase an exclusive right to sell a soccer channel (SC) in its market area. Let's assume that UCOM pays $150,000 a year for the exclusive marketing rights to SC. Since UCOM has already installed cable to all of the homes in its market area, the marginal cost of delivering Soccer Channel to subscribers is zero. The manager of UCOM needs to know what price to charge for the Soccer Channel service to maximize her profit. Before setting price, she hires an economist to estimate demand for the Soccer channel service. The economist discovers that there are two types of subscribers who value soccer. First are the 4,000 die-hard soccer fans who will pay as much as $150 a year for the new soccer channel. Second, the soccer channel will appeal to about 20,000 occasional TV viewers who will pay as much as $20 a year for a subscription to soccer channel. What is the deadweight loss associated with the non-discriminating pricing policy compared to the price discriminating…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 $160Larry, Curly, and Moe run the only saloon in town.Larry wants to sell as many drinks as possiblewithout losing money. Curly wants the saloon tobring in as much revenue as possible. Moe wantsto make the largest possible profits. Using a singlediagram of the saloon’s demand curve and its costcurves, show the price and quantity combinationsfavored by each of the three partners. Explain. (Hint:Only one of these partners will want to set marginalrevenue equal to marginal cost.)
- Zan Azlett and Angela Zesiger have joined forcesto start A&Z Lettuce Products, a processor of packaged shreddedlettuce for institutional use. Zan has years of food processingexperience,and Angela has extensive commercial food preparationexperience. The process will consist of opening crates of lettuceand then sorting, washing, slicing, preserving, and finallypackagingthe prepared lettuce. Together, with help from vendors,theythink they can adequately estimate demand, fixed costs, revenues,and variable cost per 5-pound bag of lettuce. They think alargelymanual process will have monthly fixed costs of $37,500andvariable costs of $1.75 per bag. A more mechanized process will have fixed costs of $75,000 per month with variable costs of $1.25 per 5-pound bag. They expect to sell the shredded lettuce for $2.50 per 5-pound bag.a) What is the break-even quantity for the manual process? b) What is the revenue at the break-even quantity for the manualprocess? c) What is the break-even…You own Naughty Pine lumber and sell fence panels in a competitive market. Right now, your selling price is $130 for a fence panel, and you sell 8 panels a day. You are considering changing your price. You estimate that if you raise your price to $152 a panel, you would sell 7 panels a day. On the other hand, if you lower your price to $108 a panel, you would sell 12 panels a day. (a) Draw a graph of the above information. Label your axes, and the curve. Be sure your work is clear. (b) Use the MIDPOINT FORMULA to calculate Ed over the ranges below. Use TWO decimals in your answers. (i)Calculate the price elasticity of demand for a price change from $130 to $152 and daily Total Revenue if you change your price to $152 a panel (ii)Calculate the price elasticity of demand for a price change from $130 to $108 and daily Total Revenue if you change your price to $108 a panel Should you keep your current price, or raise the price, or lower the price?In 1896, Colgate dental cream was introduced in tubes similar to those we use now. Today, the Colgate-Palmolive Company’s brand of toothpaste is the best-selling toothpaste in the world (ahead of the Crest brand marketed by Procter & Gamble, which was introduced in 1955). While Colgate and Crest enjoy the lion’s share of the toothpaste market, if you view the oral care shelf at your local drugstore or supermarket, you will find over a hundred different varieties of toothpaste. Colgate alone sells over 40 different varieties that are marketed under names ranging from Shrek Bubble Fruit to Colgate Total Advanced Whitening. The high level of product differentiation in the toothpaste market stems from firms introducing new varieties in an attempt to boost their economic profits. In environments where makers of other brands (such as Crest) can easily enter profitable segments of the market, a profitable strategy is to attempt to quickly cover that segment (introducing Shrek Bubble Fruit…