ience. (LO0 r day? 7. TotsPoses Inc., a profit-maximizing business, is the only photography business in town that specializes in por- traits of small children. George, who owns and runs TotsPoses, expects to encounter an average of eight customers per day, each with a reservation price shown in the following table. Assume George has no fixed costs, and his cost of producing each portrait is $12. (LO4, LO5, LO6) 9. Serena is a in the sale of and marginal 60 Reservation price ($ per photo) Customer 50 50 1 45 40 46 2 42 30 38 34 5 20 30 15 26 10 22 0 a. How much should George charge if he must charge a single price to all customers? At this price, how many portraits will George produce each day? What will be his economic profit? b. How much consumer surplus is generated each day at this price? c. What is the socially efficient number of portraits? d. George is very experienced in the business and knows the reservation price of each of his custom- ers. If he is allowed to charge any price he likes to any consumer, how many portraits will he produce each day and how much economic profit will he a. Relative at the se much co the mon price? b. How mu could a earn? monopol $ per ounce

ience. (LO0 r day? 7. TotsPoses Inc., a profit-maximizing business, is the only photography business in town that specializes in por- traits of small children. George, who owns and runs TotsPoses, expects to encounter an average of eight customers per day, each with a reservation price shown in the following table. Assume George has no fixed costs, and his cost of producing each portrait is $12. (LO4, LO5, LO6) 9. Serena is a in the sale of and marginal 60 Reservation price ($ per photo) Customer 50 50 1 45 40 46 2 42 30 38 34 5 20 30 15 26 10 22 0 a. How much should George charge if he must charge a single price to all customers? At this price, how many portraits will George produce each day? What will be his economic profit? b. How much consumer surplus is generated each day at this price? c. What is the socially efficient number of portraits? d. George is very experienced in the business and knows the reservation price of each of his custom- ers. If he is allowed to charge any price he likes to any consumer, how many portraits will he produce each day and how much economic profit will he a. Relative at the se much co the mon price? b. How mu could a earn? monopol $ per ounce

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter22: Getting Divisions To Work In The Firm’s Best Interests

Section: Chapter Questions

Problem 22.1IP

See similar textbooks

Similar questions

Suppose you are the economic adviser ofa company producing three brands of mobile pnones;Nokia 10, Samsung X and iPhone 7. Suppose further that, your company currently sells 120units of iPhone Z at e800 per unit, 150 units of Samsung X at e800 per unit and 200 units ofNokia 10 at e100 per unit, but in a bid to maximize profit, the company's managing directorproposes an increase in price of Samsung X from e800 to e1000 per unit for which quantitydemanded is anticipated to fall from 150 to 100 units; iPhone Z from e800 to e 1200 per unitfor which quantity demanded is anticipated to fall from 120 to 100 units; and Nokia 10 from100 to 200 per unit for which quantity demanded is expected to fall from 200 to 100 unitsUsing the mid-polint formula. compute the price elasticity of demand for each brand.From your answer in i, what is the type and economic interpretatiom of each brand'sii.value of elasticity.
4. You are the manager of a firm that produces products X and Y at zero cost. Youknow that different types of consumers value your two products differently, but you are unable toidentify these consumers individually at the time of the sale. In particular, you know there arethree types of consumers (100 of each type) with the following valuations for the two products: Consumer Type Product X Product Y1 $90 $ 602 $70 $1403 $40 $160 a. What are your profits if you charge $40 for product X and $60 for product Y?b. What are your profits if you charge $90 for product X and $160 for product Y?c. What are your profits if you charge $150 for a bundle containing one unit of product X andone unit of product Y?d. What are your profits if you charge $210 for a bundle containing one unit of X and one unit ofY, but also sell the…
As the new general manager of the Grand Palladium Jamaica luxury all-inclusive resort, youare assessing your pricing policies. Currently, the price of a weekend stay is $2,000 perguest. You estimate the marginal cost of serving a guest at $1,600, and while yourpredecessor unfortunately did not leave you data from the pricing experiments and testmarketing she performed, you do know that such experiments were done, and that yourpredecessor was competent.a. What is your best estimate of the elasticity of demand for a weekend stay at the GrandPalladium?b. Your learned that at the current price, the resort is only 80% full on the weekends.Remembering the sense of belonging that you experienced in a crowded subway duringthe rush hour, you contemplate lowering the price so the resort is completely full. What isyour back-of-the-envelope calculation for how much you need to lower the price?c. After some thought you cooled to the idea of full occupancy. Instead, you focused yourenergy and…
Assuming you are the managing director of a firm that produces three goods: A, Band C. The price elasticity of demand for A is 1.2, for B it is 1.00 and for C it is 0.75.It is known that he firm is experiencing serious cash flow problems and you have toincrease total revenue as soon as possible. If you were in a position to set the pricesfor these goods, what would be your pricing strategy for each product
Two firms with the same (constant) marginal costs are engaging in Bertrand competition. One of the companies exits the industry. As a aconsequence, the price for the other firm increases by 50%. What is the elasticity of demand in this market?O. 3O. 2O. 2.5O. 4
Ma1. Problem II Q1. If adopting a single price strategy (same price to all buyers), what price will be charged and what profit will be made? Explain Q2. If adopting a fwo-part pricing strategy. (i) what price will be charged (specify the Fixed fee and the Per-unit fec). (ii) what profit will be made?
Assume that a small firm was at one point in the SR experiencing positive economic profits, because it had been able to create a niche for its particular good. Currently, this firm is selling its good at P = $39.99. It’s AFC = $14.04, and its AVC = $25.95. Given this information, answer the following questions: What is the name of this market structure? Illustrate this firm’s current situation in its market. Specifically identify/label the areas that represent total revenue, total cost, and profit/loss/break-even. Given the information provided, fully yet briefly explain what likely happened to this firm. Fully yet briefly explain how this firm might regain its economic profits E. List the two concepts related to this market structure that are sometimes considered to be controversial. Fully yet briefly explain both sides of that argument.
As CEO of firm A, you and your management team face the decision ofwhether to undertake a $200 million R&D effort to create a new megamedicine.Your research scientists estimate that there is a 40 percentchance of successfully creating the drug. Success means securing aworldwide patent worth $550 million (implying a net profit of $350million). However, firm B (your main rival) has just announced that it isspending $150 million to pursue development of the same medicine (bya scientific method completely independent of yours). You judge that B’schance of success is 30 percent. Furthermore, if both firms aresuccessful, they will split equally the available worldwide profits($275 million each) based on separate patents.a. Given its vast financial resources, firm A is risk neutral. Should firm Aundertake the $200 million R&D effort? (Use a decision tree to justifyyour answer.)b. Now suppose that it is feasible for firm A to delay its R&D decisionuntil after the result of B’s…
1.Amalgamated Popcorn, Inc. sells bags of flavored gourmet popcorn in a popular mall. As shop owner and operator, you have observed that weekly popcorn sales are well-described by the demand equation: Q = 1,200 -800P + 2.0A, where A denotes advertising weekly spending (in dollars). You are currently charging $1.50 per bag of popcorn (for which the marginal cost is $.75) and spending $500 per week on advertising. a) Compute the store’s price elasticity and advertising elasticity. b) Check whether your current $1.50 price is profit maximizing. If not, determine the store’s optimal quantity and price. c) Should the store consider increasing its advertising spending? Why or why not.
Return to Figure 9.2. Suppose P0 is $10 and P1 is$11. Suppose a new firm with the same LRAC curve asthe incumbent tries to break into the market by selling4,000 units of output. Estimate from the graph what thenew firm’s average cost of producing output would be.If the incumbent continues to produce 6,000 units, howmuch output would the two firms supply to the market?Estimate what would happen to the market price as aresult of the supply of both the incumbent firm andthe new entrant. Approximately how much profit wouldeach firm earn?
Gouge-em Cable Company is the only cable television servicecompany licensed to operate in Backwater County. Most of itscosts are access fees and maintenance expenses. These fixed costs total $640,000 monthly. The marginal cost of addinganother subscriber to its system is constant at $2 per month.Gouge-em’s demand curve can be determined from the datain the accompanying table. a. What price will Gouge-em charge for its cable services?What are its profits at this price?b. Now suppose the Backwater County Public UtilityCommission has the data and believes that cablesubscription rates in the county are too expensive and thatGouge-em’s profits are unfairly high. What regulated pricewill it set so that Gouge-em makes only a normal rate ofreturn on its investment?
It costs $250 to produce an X-Box. We are trying todetermine the selling price for the X-Box. Prices between$200 and $400 are under consideration, with demand forprices of $200, $250, $350, and $400 given below. SupposeMSFT earns $10 in profit for each game that an X-Boxowner purchases. Determine the optimal price andassociated profit for the case in which an average X-Boxowner buys 10 games. Console Price ($) Demand200 2.00E06250 1.20E06350 6.00E05400 2.00E05Unit cost $250