You are the manager of a firm that produces products Xand Yat zero cost. You know that different types of consumers value your two products differently, but you are unable to identify these consumers individually at the time of the sale. In particular, you know there are three types of consumers (1,000 of each type) with the following valuations for the two products: Consumer Туpe Product X Product Y $ 90 $ 60 2 70 140 40 160 a. What are your firm's profits if you charge $40 for product X and $60 for product Y? (Instructions: Assume all customers purchase each product.) $ 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 and one unit of product Y? $ 450 d. What are your firm's profits if you charge $210 for a bundle containing one unit of X and one unit of Y, but also sell the products individually at a price of $90 for product X and $160 for product Y? $ 450

You are the manager of a firm that produces products Xand Yat zero cost. You know that different types of consumers value your two products differently, but you are unable to identify these consumers individually at the time of the sale. In particular, you know there are three types of consumers (1,000 of each type) with the following valuations for the two products: Consumer Туpe Product X Product Y $ 90 $ 60 2 70 140 40 160 a. What are your firm's profits if you charge $40 for product X and $60 for product Y? (Instructions: Assume all customers purchase each product.) $ 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 and one unit of product Y? $ 450 d. What are your firm's profits if you charge $210 for a bundle containing one unit of X and one unit of Y, but also sell the products individually at a price of $90 for product X and $160 for product Y? $ 450

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

Chapter23: Managing Vertical Relationships

Section: Chapter Questions

Problem 1MC

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You are the manager of a firm that produces products X and Y at zero cost. You know that different types of consumers value your two products differently, but you are unable to identify these consumers individually at the time of the sale. In particular, you know there are three types of consumers (1,000 of each type) with the following valuations for the two products: Consumer Type Product X Product Y 1 $90 $60 2 70 140 3 40 160 a. What are your firm’s 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 $150 for a bundle containing one unit of product X and one unit of product Y?$ d. What are your firm’s profits if you charge $210 for a bundle containing one unit of X and one unit of Y, but also sell the products individually at a price of $90 for product X and $160 for product Y?$
You are the manager of a firm that produces products X and Y at zero cost. You know that different types of consumers value your two products differently, but you are unable to identify these consumers individually at the time of the sale. In particular, you know there are three types of consumers (1,000 of each type) with the following valuations for the two products: Consumer Type Product X Product Y 1 $90 $60 2 70 140 3 40 160 d. What are your firm’s profits if you charge $210 for a bundle containing one unit of X and one unit of Y, but also sell the products individually at a price of $90 for product X and $160 for product Y?
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Aidan and Celina are the only sellers of jack russell terrier (JRT) inAntigua. Celina chooses her profit maximizing number of JRTs to sell, q1, basedon the number of JRTs that she expects Aidan to sell. Aidan knows how Celinawill react and chooses the number of JRTs that she herself will sell, q2, aftertaking this information into account. The inverse demand function for JRTs isP(q1 + q2) = 2, 000 − 2(q1 + q2). It costs $400 to raise a JRT to sell.(a) Explain in detail what type of competitors are Aidan and Celina.(b) If Celina expects Aidan to sell q2 JRTs, what will her ownmarginal revenue be if she herself sells q1 JRTs?(c) What is Celina’s reaction function, R(q2)?(d) Now if Aidan sells q2 JRTs, what is the total number of JRTsthat will be sold?(e) What will be the market price as a function of q2 only?(f) What is Aidan’s marginal revenue as a function of q2 only?(g) How many JRTs will Aidan sell?(h) How many JRTs will Celina sell?(i) What will be the industry price? ANSWER…
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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…
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