"Vitamin Strong" has the geographically separated markets, denoted A and B. The demand on these two markets are respectively QA = 1-PA and QB = 0.5-PB. The transport and production costs are zero for simplicity. Suppose that the firm chooses to set a uniform price across the two markets. In this case the optimal price is p =______ and would supply A = and QB = ______ (All numeric answers rounded to three decimals) Black &

"Vitamin Strong" has the geographically separated markets, denoted A and B. The demand on these two markets are respectively QA = 1-PA and QB = 0.5-PB. The transport and production costs are zero for simplicity. Suppose that the firm chooses to set a uniform price across the two markets. In this case the optimal price is p = and would supply A = and QB = (All numeric answers rounded to three decimals) Black &

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter12: Price And Output Determination: Oligopoly

Section: Chapter Questions

Problem 1E

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"Vitamin Strong" has the monopoly on the production of vitamin C. It faces geographically separated markets, denoted A and B. The demand on these two markets are respectively QA = 1-PA and QB = 0.5 - PB. The transport and production costs are zero for simplicity. Suppose that the firm chooses to set a local prices for each of the two markets. In this case the optimal prices are PA = and PB=... and would supply A-- and QB=_______ (All numeric ==== answers rounded to two decimals) Blank # 1 Blank # 2 Blank # 3 Blank # 4 N N N A
DuopolyMarket for mechanical pencils can be described by the following demand schedule:Price | Number of pencils demanded$6 | 80$5 | 200$4 | 320$3 | 440$2 | 560$1 | 680$0 | 800The fixed cost is $340, while the variable cost is $0.50.d) If there were two firms on the market and they agreed to cooperate, how much would eachfirm need to produce? Follow the procedure outlined in the lecture and show that the otherfirm would prefer to deviate from the agreement.e) When the firms deviate from the agreement, there is a new optimal level of output. Showwhether the firms have an incentive to deviate from that level?f) If there were two firms on the market, what would be the price and the quantity of pencilstraded if the firms couldn’t cooperate?
Suppose that Volkswagen hires a popular singer to adver-tise its compact automobiles. The campaign is very success-ful, and the company increases its share of the compact-car market substantially. What is Ford likely to do?
Assume that there is only a single seller of papadums, and she knows eachbuyer’s willingness to pay. Assume that this seller incurs a cost of $4.00 perunit of papadum produced (i.e., the marginal cost is constant). If she intends to maximise profits, how many papadums would this seller supply to the market, and what price would she charge? Remember, the price has to be the same for each unit sold. Hint: start at a price of $17 and calculate what profit would be. Then lower the price just enough to attract an additional buyer and calculate what the new profit would be. Repeat this until all four buyers are purchasing the good and then check which price yields the highest profit. Alternatively, you can calculate the marginal revenue from lowering the price to attract an additional buyer and compare it to marginal cost.
Consider any market that has a demand curve given by: Qd = 240 - 2P. Where Qd is the total quantity demanded in the market, given in millions of units and P is the market price, calculated in monetary units. Imagine that there are 2 Cournot oligopolists operating in this market with Cmg = CVme = 15 and fixed monthly costs equal to 1,400. About this market, ask yourself: a) What is the profit of each of the oligopolists? b) Imagine that one of the companies managed to implement a process innovation capable of halving its Cmg and CVme, so that they would go from 15 to 7.5. This investment implies an additional monthly expense of $1,800. Discuss the statement: "If this situation occurs, the innovative company will not implement variable cost reduction, as the quantity supplied in the market will increase very little; prices will remain very close to what they are today and its profits will not increase"
Suppose a monopoly market has a demand function in whichquantity demanded depends not only on market price (P) butalso on the amount of advertising the firm does (A, measuredin dollars). The specific form of this function isQ =(20 - P2) (1 + 0.1A - 0.01A2).The monopolistic firm’s cost function is given byC = 10Q + 15 + A.a. Suppose there is no advertising (A = 0). What outputwill the profit-maximizing firm choose? What market price will this yield? What will be the monopoly’sprofits?b. Now let the firm also choose its optimal level of advertising expenditure. In this situation, what output levelwill be chosen? What price will this yield? What will thelevel of advertising be? What are the firm’s profits in thiscase? Hint: This can be worked out most easily by assuming the monopoly chooses the profit-maximizing pricerather than quantity.
10. The platypus is a shy and secretive animal that does not breed well in captivity. But two breeders, Sydney and Adelaide, have discovered the secret to platypus fer- tility and have effectively cornered the market. Zoos across the globe come to them to purchase their output; the world inverse demand for baby platypuses is given avby P=1,000-20, where Q is the combined output of blu Sydney (qs) and Adelaide (qA). vide a. Sydney wishes to produce the profit-maximizing quantity of baby platypus. Given Adelaide's choice of output, 9A, write an equation for the residual demand faced by Sydney. 19125 non c. ab. Derive Sydney's residual marginal revenue curve. Assume that the marginal and average total cost of raising a baby platypus to an age at which it can be sold is $200. Derive Sydney's reaction function. d. Repeat steps (a), (b), and (c) to find Adelaide's reac- tion function to Sydney's output choice. 18 e. Substitute Sydney's reaction function into Adelaide's to solve for…
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.
B 20. Two-part tariff. A two-part tariff is another price-discrimination method where the producer of argood is able to capture the entire consumer surplus. An example of this might be an amusement park that charges a fee for entry (the tariff), and then charges the customer for each ride (by buying tickets). Let's investigate how a firm sets the optimal two-part tariff by assuming that we have 100 consumers each, with demand for rides of p=9-q, and the costs of running the amusement park are C(q)=100+q. (a) Uniform pricing. If the firm acts as a monopoly, setting a single price, what is its profit- maximizing price, quantity of rides (per person and aggregate), and profit? (b) Marginal cost pricing. If the firm sets its price per ride equal to marginal cost, what is the number of rides it will sell (per person and aggregate) and consumer surplus? (c) Two-part tariff. If the amusement park uses a two-part tariff, setting its entrance fee equal to consumer surplus while charging a price…
An amusement park decides to apply two-part tariff rule to set price, given the demand equation P-6-2.5Q and MC =$1. Based on equilibrium price (P) and quantity (Q), how much is the maximum upfront fee the park could charge each visitor? (please review notes on 'Consumer value (refer to slides 1, 2, and 3)) O $0.75. $1.0. O $1.25 O $1.5.
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…
Suppose Always There Wireless serves 100 high-demand wireless consumers, who each have a monthly demand curve for wireless minutes of QH= 200 - 100P, and 300 low-demand consumers, who each have a monthly demand curve for wireless minujes of O, = 100 - 100P, where Pis the per-minute price in dollars. The marginal cost is $0.25 per minute. Suppose Always There Wireless charges $0.30 per minute, If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers, what is the profit from sales to each of the high-demand consumers? $33.00 $28.00 O $28.13 $24.50