The profit maximizing quantity, profit made and the consumer surplus earned.

Question

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Answer 1

Question

Chapter 10, Problem 16P

(a)

To determine

The profit maximizing quantity, profit made and the consumer surplus earned.

(a)

Expert Solution

Explanation of Solution

The average total cost of production of the seller is $0.50. The inverse demand function of the firm is P=2.5−0.1Q. Since the marginal revenue curve of the monopolist will have the same intercept, the double slope which makes the marginal revenue is MR=2.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC2.5−0.2Q=0.500.2Q=2Q=20.2=10

Thus, the profit maximizing quantity is 10. The output can be plugged into the demand function in order to calculate the profit maximizing price as given below:

P=2.5−0.1Q=2.5−(0.1×10)=2.5−1=1.5

Thus, the profit maximizing price is $1.50. The profit of the firm can be calculated as follows:

Profit=TR−TC=(Price×Quantity)−(Average cost×Quantity)=(1.50×10)−(0.50×10)=15−5=10

Thus, the total profit made by the firm is $10. This can be illustrated on the graph as follows:

LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 1

The consumer surplus of the market is the area above the profit maximizing price and below the demand curve which is the area of A. It can be calculated as follows:

Consumer surplus=12×(2.50−1.50)×10=12×1×10=5

Thus, the consumer surplus of the market is $5.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different price from different consumers for the exact same commodity on the basis of the quantity bought or by the place or the group of individuals.

(b)

To determine

The discount price of the cupcakes above 10 units.

(b)

Expert Solution

Explanation of Solution

When the first 10 cupcakes are sold at $1.50 and after that the items are sold at discounted prices. Thus, the new inverse demand function is P=1.5−0.1Q. Thus, the new marginal revenue curve of the firm will become MR=1.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC1.5−0.2Q=0.500.2Q=1Q=10.2=5

Thus, the profit maximizing quantity is 5. The output can be plugged into the demand function in order to calculate the profit maximizing price as follows:

P=1.5−0.1Q=1.5−(0.1×5)=1.5−0.5=1

Thus, the profit maximizing price is $1.

(c)

To determine

The quantity ordered at full price and discounted price.

(c)

Expert Solution

Explanation of Solution

The consumers will purchase a total of 10 units at the full price whereas at 5 units at discounted price of $1.

(d)

To determine

The new profit and the comparison with the normal profit.

(d)

Expert Solution

Explanation of Solution

The profit from the normal plan to the seller is $10. After the discounting, the price becomes $1 and the output is 5. Thus, the profit can be calculated as follows:

Profit=10+(TR−TC)=10+(Price×Quantity)−(Average cost×Quantity)=10+(1×5)−(0.50×5)=10+(5−2.5)=10+2.5=12.5 LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 2

Thus, the profit of the seller increases by $2.5 after the discounted pricing policy is introduced by the seller.

(e)

To determine

The three tire pricing system.

(e)

Expert Solution

Explanation of Solution

The three tire pricing system can be introduced by splitting the total demand curve into four parts. Above the marginal revenue and below the marginal revenue. It can be done as $2.5 for the first 5 units, $1.5 for the next 5 units, $1 for units above 10 units. Thus, the total quantity sold is 15 units. Thus, the total profit of the firm can be calculated as follows:

Profit=TR−TC=((Price1−Average cost1)×Quantity1+(Price2−Average cost2)×Quantity2+...+(Pricen−Average costn)×Quantityn)=[(2−0.5)×5]+[(1.5−0.5)×5]+[(1−0.5)×5]=[7.5]+[5]+[2.5]=15

Thus, the total profit earned is $15 which is higher than the two tire pricing in the economy.

(f)

To determine

The tire pricing system that declines from $2.40 to lower.

(f)

Expert Solution

Explanation of Solution

The price for the first unit will be $2.40 and it declines by $0.10 for each additional units sold in the market. When the strategy goes on, the last unit price will be equal to the marginal cost of production which is $0.50. This implies that the total number units sold by the seller will be equal to 20 units and the pricing system followed by the seller will be a 20 tier pricing system. Thus, the total profit earned by the seller can be calculated as follows:

Profit=[(2.40−0.50)+(2.30−0.50)+(2.20−0.50)+(2.10−0.50)+(2.00−0.50)+(1.90−0.50)+(1.80−0.50)+(1.70−0.50)+(1.60−0.50)+(1.50−0.50)+(1.40−0.50)+(1.30−0.50)+(1.20−0.50)+(1.10−0.50)+(1.00−0.50)+(0.90−0.50)+(0.80−0.50)+(0.70−0.50)+(0.60−0.50)+(0.50−0.50)]=[1.90+1.80+1.70+1.60+1.50+1.40+1.30+1.20+1.10+1.00+0.90+0.80+0.70+0.60+0.50+0.40+0.30+0.20+0.10]=19

Thus, the total profit earned from the 20 tire pricing system is equal to $19.

(g)

To determine

The impact of 20 tire pricing on consumer surplus.

(g)

Expert Solution

Explanation of Solution

When the 20 tire pricing policy is followed by the firm, it takes most of the consumers' willingness to pay which means the consumer surplus will be taken by the firm. Thus, it means that the complete consumer surplus of the economy would be captured by the firm as producer surplus, and thus there will be no deadweight loss in the economy too.

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Answer 2

Question

Chapter 10, Problem 16P

(a)

To determine

The profit maximizing quantity, profit made and the consumer surplus earned.

(a)

Expert Solution

Explanation of Solution

The average total cost of production of the seller is $0.50. The inverse demand function of the firm is P=2.5−0.1Q. Since the marginal revenue curve of the monopolist will have the same intercept, the double slope which makes the marginal revenue is MR=2.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC2.5−0.2Q=0.500.2Q=2Q=20.2=10

Thus, the profit maximizing quantity is 10. The output can be plugged into the demand function in order to calculate the profit maximizing price as given below:

P=2.5−0.1Q=2.5−(0.1×10)=2.5−1=1.5

Thus, the profit maximizing price is $1.50. The profit of the firm can be calculated as follows:

Profit=TR−TC=(Price×Quantity)−(Average cost×Quantity)=(1.50×10)−(0.50×10)=15−5=10

Thus, the total profit made by the firm is $10. This can be illustrated on the graph as follows:

LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 1

The consumer surplus of the market is the area above the profit maximizing price and below the demand curve which is the area of A. It can be calculated as follows:

Consumer surplus=12×(2.50−1.50)×10=12×1×10=5

Thus, the consumer surplus of the market is $5.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different price from different consumers for the exact same commodity on the basis of the quantity bought or by the place or the group of individuals.

(b)

To determine

The discount price of the cupcakes above 10 units.

(b)

Expert Solution

Explanation of Solution

When the first 10 cupcakes are sold at $1.50 and after that the items are sold at discounted prices. Thus, the new inverse demand function is P=1.5−0.1Q. Thus, the new marginal revenue curve of the firm will become MR=1.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC1.5−0.2Q=0.500.2Q=1Q=10.2=5

Thus, the profit maximizing quantity is 5. The output can be plugged into the demand function in order to calculate the profit maximizing price as follows:

P=1.5−0.1Q=1.5−(0.1×5)=1.5−0.5=1

Thus, the profit maximizing price is $1.

(c)

To determine

The quantity ordered at full price and discounted price.

(c)

Expert Solution

Explanation of Solution

The consumers will purchase a total of 10 units at the full price whereas at 5 units at discounted price of $1.

(d)

To determine

The new profit and the comparison with the normal profit.

(d)

Expert Solution

Explanation of Solution

The profit from the normal plan to the seller is $10. After the discounting, the price becomes $1 and the output is 5. Thus, the profit can be calculated as follows:

Profit=10+(TR−TC)=10+(Price×Quantity)−(Average cost×Quantity)=10+(1×5)−(0.50×5)=10+(5−2.5)=10+2.5=12.5 LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 2

Thus, the profit of the seller increases by $2.5 after the discounted pricing policy is introduced by the seller.

(e)

To determine

The three tire pricing system.

(e)

Expert Solution

Explanation of Solution

The three tire pricing system can be introduced by splitting the total demand curve into four parts. Above the marginal revenue and below the marginal revenue. It can be done as $2.5 for the first 5 units, $1.5 for the next 5 units, $1 for units above 10 units. Thus, the total quantity sold is 15 units. Thus, the total profit of the firm can be calculated as follows:

Profit=TR−TC=((Price1−Average cost1)×Quantity1+(Price2−Average cost2)×Quantity2+...+(Pricen−Average costn)×Quantityn)=[(2−0.5)×5]+[(1.5−0.5)×5]+[(1−0.5)×5]=[7.5]+[5]+[2.5]=15

Thus, the total profit earned is $15 which is higher than the two tire pricing in the economy.

(f)

To determine

The tire pricing system that declines from $2.40 to lower.

(f)

Expert Solution

Explanation of Solution

The price for the first unit will be $2.40 and it declines by $0.10 for each additional units sold in the market. When the strategy goes on, the last unit price will be equal to the marginal cost of production which is $0.50. This implies that the total number units sold by the seller will be equal to 20 units and the pricing system followed by the seller will be a 20 tier pricing system. Thus, the total profit earned by the seller can be calculated as follows:

Profit=[(2.40−0.50)+(2.30−0.50)+(2.20−0.50)+(2.10−0.50)+(2.00−0.50)+(1.90−0.50)+(1.80−0.50)+(1.70−0.50)+(1.60−0.50)+(1.50−0.50)+(1.40−0.50)+(1.30−0.50)+(1.20−0.50)+(1.10−0.50)+(1.00−0.50)+(0.90−0.50)+(0.80−0.50)+(0.70−0.50)+(0.60−0.50)+(0.50−0.50)]=[1.90+1.80+1.70+1.60+1.50+1.40+1.30+1.20+1.10+1.00+0.90+0.80+0.70+0.60+0.50+0.40+0.30+0.20+0.10]=19

Thus, the total profit earned from the 20 tire pricing system is equal to $19.

(g)

To determine

The impact of 20 tire pricing on consumer surplus.

(g)

Expert Solution

Explanation of Solution

When the 20 tire pricing policy is followed by the firm, it takes most of the consumers' willingness to pay which means the consumer surplus will be taken by the firm. Thus, it means that the complete consumer surplus of the economy would be captured by the firm as producer surplus, and thus there will be no deadweight loss in the economy too.

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Answer 3

Question

Chapter 10, Problem 16P

(a)

To determine

The profit maximizing quantity, profit made and the consumer surplus earned.

(a)

Expert Solution

Explanation of Solution

The average total cost of production of the seller is $0.50. The inverse demand function of the firm is P=2.5−0.1Q. Since the marginal revenue curve of the monopolist will have the same intercept, the double slope which makes the marginal revenue is MR=2.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC2.5−0.2Q=0.500.2Q=2Q=20.2=10

Thus, the profit maximizing quantity is 10. The output can be plugged into the demand function in order to calculate the profit maximizing price as given below:

P=2.5−0.1Q=2.5−(0.1×10)=2.5−1=1.5

Thus, the profit maximizing price is $1.50. The profit of the firm can be calculated as follows:

Profit=TR−TC=(Price×Quantity)−(Average cost×Quantity)=(1.50×10)−(0.50×10)=15−5=10

Thus, the total profit made by the firm is $10. This can be illustrated on the graph as follows:

LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 1

The consumer surplus of the market is the area above the profit maximizing price and below the demand curve which is the area of A. It can be calculated as follows:

Consumer surplus=12×(2.50−1.50)×10=12×1×10=5

Thus, the consumer surplus of the market is $5.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different price from different consumers for the exact same commodity on the basis of the quantity bought or by the place or the group of individuals.

(b)

To determine

The discount price of the cupcakes above 10 units.

(b)

Expert Solution

Explanation of Solution

When the first 10 cupcakes are sold at $1.50 and after that the items are sold at discounted prices. Thus, the new inverse demand function is P=1.5−0.1Q. Thus, the new marginal revenue curve of the firm will become MR=1.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC1.5−0.2Q=0.500.2Q=1Q=10.2=5

Thus, the profit maximizing quantity is 5. The output can be plugged into the demand function in order to calculate the profit maximizing price as follows:

P=1.5−0.1Q=1.5−(0.1×5)=1.5−0.5=1

Thus, the profit maximizing price is $1.

(c)

To determine

The quantity ordered at full price and discounted price.

(c)

Expert Solution

Explanation of Solution

The consumers will purchase a total of 10 units at the full price whereas at 5 units at discounted price of $1.

(d)

To determine

The new profit and the comparison with the normal profit.

(d)

Expert Solution

Explanation of Solution

The profit from the normal plan to the seller is $10. After the discounting, the price becomes $1 and the output is 5. Thus, the profit can be calculated as follows:

Profit=10+(TR−TC)=10+(Price×Quantity)−(Average cost×Quantity)=10+(1×5)−(0.50×5)=10+(5−2.5)=10+2.5=12.5 LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 2

Thus, the profit of the seller increases by $2.5 after the discounted pricing policy is introduced by the seller.

(e)

To determine

The three tire pricing system.

(e)

Expert Solution

Explanation of Solution

The three tire pricing system can be introduced by splitting the total demand curve into four parts. Above the marginal revenue and below the marginal revenue. It can be done as $2.5 for the first 5 units, $1.5 for the next 5 units, $1 for units above 10 units. Thus, the total quantity sold is 15 units. Thus, the total profit of the firm can be calculated as follows:

Profit=TR−TC=((Price1−Average cost1)×Quantity1+(Price2−Average cost2)×Quantity2+...+(Pricen−Average costn)×Quantityn)=[(2−0.5)×5]+[(1.5−0.5)×5]+[(1−0.5)×5]=[7.5]+[5]+[2.5]=15

Thus, the total profit earned is $15 which is higher than the two tire pricing in the economy.

(f)

To determine

The tire pricing system that declines from $2.40 to lower.

(f)

Expert Solution

Explanation of Solution

The price for the first unit will be $2.40 and it declines by $0.10 for each additional units sold in the market. When the strategy goes on, the last unit price will be equal to the marginal cost of production which is $0.50. This implies that the total number units sold by the seller will be equal to 20 units and the pricing system followed by the seller will be a 20 tier pricing system. Thus, the total profit earned by the seller can be calculated as follows:

Profit=[(2.40−0.50)+(2.30−0.50)+(2.20−0.50)+(2.10−0.50)+(2.00−0.50)+(1.90−0.50)+(1.80−0.50)+(1.70−0.50)+(1.60−0.50)+(1.50−0.50)+(1.40−0.50)+(1.30−0.50)+(1.20−0.50)+(1.10−0.50)+(1.00−0.50)+(0.90−0.50)+(0.80−0.50)+(0.70−0.50)+(0.60−0.50)+(0.50−0.50)]=[1.90+1.80+1.70+1.60+1.50+1.40+1.30+1.20+1.10+1.00+0.90+0.80+0.70+0.60+0.50+0.40+0.30+0.20+0.10]=19

Thus, the total profit earned from the 20 tire pricing system is equal to $19.

(g)

To determine

The impact of 20 tire pricing on consumer surplus.

(g)

Expert Solution

Explanation of Solution

When the 20 tire pricing policy is followed by the firm, it takes most of the consumers' willingness to pay which means the consumer surplus will be taken by the firm. Thus, it means that the complete consumer surplus of the economy would be captured by the firm as producer surplus, and thus there will be no deadweight loss in the economy too.

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Answer 4

Question

Chapter 10, Problem 16P

(a)

To determine

The profit maximizing quantity, profit made and the consumer surplus earned.

(a)

Expert Solution

Explanation of Solution

The average total cost of production of the seller is $0.50. The inverse demand function of the firm is P=2.5−0.1Q. Since the marginal revenue curve of the monopolist will have the same intercept, the double slope which makes the marginal revenue is MR=2.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC2.5−0.2Q=0.500.2Q=2Q=20.2=10

Thus, the profit maximizing quantity is 10. The output can be plugged into the demand function in order to calculate the profit maximizing price as given below:

P=2.5−0.1Q=2.5−(0.1×10)=2.5−1=1.5

Thus, the profit maximizing price is $1.50. The profit of the firm can be calculated as follows:

Profit=TR−TC=(Price×Quantity)−(Average cost×Quantity)=(1.50×10)−(0.50×10)=15−5=10

Thus, the total profit made by the firm is $10. This can be illustrated on the graph as follows:

LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 1

The consumer surplus of the market is the area above the profit maximizing price and below the demand curve which is the area of A. It can be calculated as follows:

Consumer surplus=12×(2.50−1.50)×10=12×1×10=5

Thus, the consumer surplus of the market is $5.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different price from different consumers for the exact same commodity on the basis of the quantity bought or by the place or the group of individuals.

(b)

To determine

The discount price of the cupcakes above 10 units.

(b)

Expert Solution

Explanation of Solution

When the first 10 cupcakes are sold at $1.50 and after that the items are sold at discounted prices. Thus, the new inverse demand function is P=1.5−0.1Q. Thus, the new marginal revenue curve of the firm will become MR=1.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC1.5−0.2Q=0.500.2Q=1Q=10.2=5

Thus, the profit maximizing quantity is 5. The output can be plugged into the demand function in order to calculate the profit maximizing price as follows:

P=1.5−0.1Q=1.5−(0.1×5)=1.5−0.5=1

Thus, the profit maximizing price is $1.

(c)

To determine

The quantity ordered at full price and discounted price.

(c)

Expert Solution

Explanation of Solution

The consumers will purchase a total of 10 units at the full price whereas at 5 units at discounted price of $1.

(d)

To determine

The new profit and the comparison with the normal profit.

(d)

Expert Solution

Explanation of Solution

The profit from the normal plan to the seller is $10. After the discounting, the price becomes $1 and the output is 5. Thus, the profit can be calculated as follows:

Profit=10+(TR−TC)=10+(Price×Quantity)−(Average cost×Quantity)=10+(1×5)−(0.50×5)=10+(5−2.5)=10+2.5=12.5 LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 2

Thus, the profit of the seller increases by $2.5 after the discounted pricing policy is introduced by the seller.

(e)

To determine

The three tire pricing system.

(e)

Expert Solution

Explanation of Solution

The three tire pricing system can be introduced by splitting the total demand curve into four parts. Above the marginal revenue and below the marginal revenue. It can be done as $2.5 for the first 5 units, $1.5 for the next 5 units, $1 for units above 10 units. Thus, the total quantity sold is 15 units. Thus, the total profit of the firm can be calculated as follows:

Profit=TR−TC=((Price1−Average cost1)×Quantity1+(Price2−Average cost2)×Quantity2+...+(Pricen−Average costn)×Quantityn)=[(2−0.5)×5]+[(1.5−0.5)×5]+[(1−0.5)×5]=[7.5]+[5]+[2.5]=15

Thus, the total profit earned is $15 which is higher than the two tire pricing in the economy.

(f)

To determine

The tire pricing system that declines from $2.40 to lower.

(f)

Expert Solution

Explanation of Solution

The price for the first unit will be $2.40 and it declines by $0.10 for each additional units sold in the market. When the strategy goes on, the last unit price will be equal to the marginal cost of production which is $0.50. This implies that the total number units sold by the seller will be equal to 20 units and the pricing system followed by the seller will be a 20 tier pricing system. Thus, the total profit earned by the seller can be calculated as follows:

Profit=[(2.40−0.50)+(2.30−0.50)+(2.20−0.50)+(2.10−0.50)+(2.00−0.50)+(1.90−0.50)+(1.80−0.50)+(1.70−0.50)+(1.60−0.50)+(1.50−0.50)+(1.40−0.50)+(1.30−0.50)+(1.20−0.50)+(1.10−0.50)+(1.00−0.50)+(0.90−0.50)+(0.80−0.50)+(0.70−0.50)+(0.60−0.50)+(0.50−0.50)]=[1.90+1.80+1.70+1.60+1.50+1.40+1.30+1.20+1.10+1.00+0.90+0.80+0.70+0.60+0.50+0.40+0.30+0.20+0.10]=19

Thus, the total profit earned from the 20 tire pricing system is equal to $19.

(g)

To determine

The impact of 20 tire pricing on consumer surplus.

(g)

Expert Solution

Explanation of Solution

When the 20 tire pricing policy is followed by the firm, it takes most of the consumers' willingness to pay which means the consumer surplus will be taken by the firm. Thus, it means that the complete consumer surplus of the economy would be captured by the firm as producer surplus, and thus there will be no deadweight loss in the economy too.

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Answer 5

Chapter 10, Problem 16P

(a)

To determine

The profit maximizing quantity, profit made and the consumer surplus earned.

(a)

Expert Solution

Explanation of Solution

The average total cost of production of the seller is $0.50. The inverse demand function of the firm is P=2.5−0.1Q. Since the marginal revenue curve of the monopolist will have the same intercept, the double slope which makes the marginal revenue is MR=2.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC2.5−0.2Q=0.500.2Q=2Q=20.2=10

Thus, the profit maximizing quantity is 10. The output can be plugged into the demand function in order to calculate the profit maximizing price as given below:

P=2.5−0.1Q=2.5−(0.1×10)=2.5−1=1.5

Thus, the profit maximizing price is $1.50. The profit of the firm can be calculated as follows:

Profit=TR−TC=(Price×Quantity)−(Average cost×Quantity)=(1.50×10)−(0.50×10)=15−5=10

Thus, the total profit made by the firm is $10. This can be illustrated on the graph as follows:

LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 1

The consumer surplus of the market is the area above the profit maximizing price and below the demand curve which is the area of A. It can be calculated as follows:

Consumer surplus=12×(2.50−1.50)×10=12×1×10=5

Thus, the consumer surplus of the market is $5.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different price from different consumers for the exact same commodity on the basis of the quantity bought or by the place or the group of individuals.

(b)

To determine

The discount price of the cupcakes above 10 units.

(b)

Expert Solution

Explanation of Solution

When the first 10 cupcakes are sold at $1.50 and after that the items are sold at discounted prices. Thus, the new inverse demand function is P=1.5−0.1Q. Thus, the new marginal revenue curve of the firm will become MR=1.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC1.5−0.2Q=0.500.2Q=1Q=10.2=5

Thus, the profit maximizing quantity is 5. The output can be plugged into the demand function in order to calculate the profit maximizing price as follows:

P=1.5−0.1Q=1.5−(0.1×5)=1.5−0.5=1

Thus, the profit maximizing price is $1.

(c)

To determine

The quantity ordered at full price and discounted price.

(c)

Expert Solution

Explanation of Solution

The consumers will purchase a total of 10 units at the full price whereas at 5 units at discounted price of $1.

(d)

To determine

The new profit and the comparison with the normal profit.

(d)

Expert Solution

Explanation of Solution

The profit from the normal plan to the seller is $10. After the discounting, the price becomes $1 and the output is 5. Thus, the profit can be calculated as follows:

Profit=10+(TR−TC)=10+(Price×Quantity)−(Average cost×Quantity)=10+(1×5)−(0.50×5)=10+(5−2.5)=10+2.5=12.5 LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 2

Thus, the profit of the seller increases by $2.5 after the discounted pricing policy is introduced by the seller.

(e)

To determine

The three tire pricing system.

(e)

Expert Solution

Explanation of Solution

The three tire pricing system can be introduced by splitting the total demand curve into four parts. Above the marginal revenue and below the marginal revenue. It can be done as $2.5 for the first 5 units, $1.5 for the next 5 units, $1 for units above 10 units. Thus, the total quantity sold is 15 units. Thus, the total profit of the firm can be calculated as follows:

Profit=TR−TC=((Price1−Average cost1)×Quantity1+(Price2−Average cost2)×Quantity2+...+(Pricen−Average costn)×Quantityn)=[(2−0.5)×5]+[(1.5−0.5)×5]+[(1−0.5)×5]=[7.5]+[5]+[2.5]=15

Thus, the total profit earned is $15 which is higher than the two tire pricing in the economy.

(f)

To determine

The tire pricing system that declines from $2.40 to lower.

(f)

Expert Solution

Explanation of Solution

The price for the first unit will be $2.40 and it declines by $0.10 for each additional units sold in the market. When the strategy goes on, the last unit price will be equal to the marginal cost of production which is $0.50. This implies that the total number units sold by the seller will be equal to 20 units and the pricing system followed by the seller will be a 20 tier pricing system. Thus, the total profit earned by the seller can be calculated as follows:

Profit=[(2.40−0.50)+(2.30−0.50)+(2.20−0.50)+(2.10−0.50)+(2.00−0.50)+(1.90−0.50)+(1.80−0.50)+(1.70−0.50)+(1.60−0.50)+(1.50−0.50)+(1.40−0.50)+(1.30−0.50)+(1.20−0.50)+(1.10−0.50)+(1.00−0.50)+(0.90−0.50)+(0.80−0.50)+(0.70−0.50)+(0.60−0.50)+(0.50−0.50)]=[1.90+1.80+1.70+1.60+1.50+1.40+1.30+1.20+1.10+1.00+0.90+0.80+0.70+0.60+0.50+0.40+0.30+0.20+0.10]=19

Thus, the total profit earned from the 20 tire pricing system is equal to $19.

(g)

To determine

The impact of 20 tire pricing on consumer surplus.

(g)

Expert Solution

Explanation of Solution

When the 20 tire pricing policy is followed by the firm, it takes most of the consumers' willingness to pay which means the consumer surplus will be taken by the firm. Thus, it means that the complete consumer surplus of the economy would be captured by the firm as producer surplus, and thus there will be no deadweight loss in the economy too.

Answer 6

Chapter 10, Problem 16P

(a)

To determine

The profit maximizing quantity, profit made and the consumer surplus earned.

(a)

Expert Solution

Explanation of Solution

The average total cost of production of the seller is $0.50. The inverse demand function of the firm is P=2.5−0.1Q. Since the marginal revenue curve of the monopolist will have the same intercept, the double slope which makes the marginal revenue is MR=2.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC2.5−0.2Q=0.500.2Q=2Q=20.2=10

Thus, the profit maximizing quantity is 10. The output can be plugged into the demand function in order to calculate the profit maximizing price as given below:

P=2.5−0.1Q=2.5−(0.1×10)=2.5−1=1.5

Thus, the profit maximizing price is $1.50. The profit of the firm can be calculated as follows:

Profit=TR−TC=(Price×Quantity)−(Average cost×Quantity)=(1.50×10)−(0.50×10)=15−5=10

Thus, the total profit made by the firm is $10. This can be illustrated on the graph as follows:

LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 1

The consumer surplus of the market is the area above the profit maximizing price and below the demand curve which is the area of A. It can be calculated as follows:

Consumer surplus=12×(2.50−1.50)×10=12×1×10=5

Thus, the consumer surplus of the market is $5.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different price from different consumers for the exact same commodity on the basis of the quantity bought or by the place or the group of individuals.

Answer 7

Chapter 10, Problem 16P

(a)

To determine

The profit maximizing quantity, profit made and the consumer surplus earned.

Answer 8

(a)

Expert Solution

Explanation of Solution

The average total cost of production of the seller is $0.50. The inverse demand function of the firm is P=2.5−0.1Q. Since the marginal revenue curve of the monopolist will have the same intercept, the double slope which makes the marginal revenue is MR=2.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC2.5−0.2Q=0.500.2Q=2Q=20.2=10

Thus, the profit maximizing quantity is 10. The output can be plugged into the demand function in order to calculate the profit maximizing price as given below:

P=2.5−0.1Q=2.5−(0.1×10)=2.5−1=1.5

Thus, the profit maximizing price is $1.50. The profit of the firm can be calculated as follows:

Profit=TR−TC=(Price×Quantity)−(Average cost×Quantity)=(1.50×10)−(0.50×10)=15−5=10

Thus, the total profit made by the firm is $10. This can be illustrated on the graph as follows:

LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 1

The consumer surplus of the market is the area above the profit maximizing price and below the demand curve which is the area of A. It can be calculated as follows:

Consumer surplus=12×(2.50−1.50)×10=12×1×10=5

Thus, the consumer surplus of the market is $5.

Answer 9

(a)

Expert Solution

Answer 10

(a)

Expert Solution

Answer 11

Expert Solution

Answer 12

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different price from different consumers for the exact same commodity on the basis of the quantity bought or by the place or the group of individuals.

Answer 13

(b)

To determine

The discount price of the cupcakes above 10 units.

(b)

Expert Solution

Explanation of Solution

When the first 10 cupcakes are sold at $1.50 and after that the items are sold at discounted prices. Thus, the new inverse demand function is P=1.5−0.1Q. Thus, the new marginal revenue curve of the firm will become MR=1.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC1.5−0.2Q=0.500.2Q=1Q=10.2=5

Thus, the profit maximizing quantity is 5. The output can be plugged into the demand function in order to calculate the profit maximizing price as follows:

P=1.5−0.1Q=1.5−(0.1×5)=1.5−0.5=1

Thus, the profit maximizing price is $1.

Answer 14

(b)

To determine

The discount price of the cupcakes above 10 units.

Answer 15

(b)

Expert Solution

Explanation of Solution

When the first 10 cupcakes are sold at $1.50 and after that the items are sold at discounted prices. Thus, the new inverse demand function is P=1.5−0.1Q. Thus, the new marginal revenue curve of the firm will become MR=1.5−0.2Q. Thus the profit maximizing quantity can be obtained by equating the marginal revenue with the marginal cost as follows:

MR=MC1.5−0.2Q=0.500.2Q=1Q=10.2=5

Thus, the profit maximizing quantity is 5. The output can be plugged into the demand function in order to calculate the profit maximizing price as follows:

P=1.5−0.1Q=1.5−(0.1×5)=1.5−0.5=1

Thus, the profit maximizing price is $1.

Answer 16

(b)

Expert Solution

Answer 17

(b)

Expert Solution

Answer 18

Expert Solution

Answer 19

(c)

To determine

The quantity ordered at full price and discounted price.

(c)

Expert Solution

Explanation of Solution

The consumers will purchase a total of 10 units at the full price whereas at 5 units at discounted price of $1.

Answer 20

(c)

To determine

The quantity ordered at full price and discounted price.

Answer 21

(c)

Expert Solution

Explanation of Solution

The consumers will purchase a total of 10 units at the full price whereas at 5 units at discounted price of $1.

Answer 22

(c)

Expert Solution

Answer 23

(c)

Expert Solution

Answer 24

Expert Solution

Answer 25

(d)

To determine

The new profit and the comparison with the normal profit.

(d)

Expert Solution

Explanation of Solution

The profit from the normal plan to the seller is $10. After the discounting, the price becomes $1 and the output is 5. Thus, the profit can be calculated as follows:

Profit=10+(TR−TC)=10+(Price×Quantity)−(Average cost×Quantity)=10+(1×5)−(0.50×5)=10+(5−2.5)=10+2.5=12.5 LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 2

Thus, the profit of the seller increases by $2.5 after the discounted pricing policy is introduced by the seller.

Answer 26

(d)

To determine

The new profit and the comparison with the normal profit.

Answer 27

(d)

Expert Solution

Explanation of Solution

The profit from the normal plan to the seller is $10. After the discounting, the price becomes $1 and the output is 5. Thus, the profit can be calculated as follows:

Profit=10+(TR−TC)=10+(Price×Quantity)−(Average cost×Quantity)=10+(1×5)−(0.50×5)=10+(5−2.5)=10+2.5=12.5 LaunchPad for Goolsbee's Microeconomics (Six Month Access), Chapter 10, Problem 16P , additional homework tip 2

Thus, the profit of the seller increases by $2.5 after the discounted pricing policy is introduced by the seller.

Answer 28

(d)

Expert Solution

Answer 29

(d)

Expert Solution

Answer 30

Expert Solution

Answer 31

(e)

To determine

The three tire pricing system.

(e)

Expert Solution

Explanation of Solution

The three tire pricing system can be introduced by splitting the total demand curve into four parts. Above the marginal revenue and below the marginal revenue. It can be done as $2.5 for the first 5 units, $1.5 for the next 5 units, $1 for units above 10 units. Thus, the total quantity sold is 15 units. Thus, the total profit of the firm can be calculated as follows:

Profit=TR−TC=((Price1−Average cost1)×Quantity1+(Price2−Average cost2)×Quantity2+...+(Pricen−Average costn)×Quantityn)=[(2−0.5)×5]+[(1.5−0.5)×5]+[(1−0.5)×5]=[7.5]+[5]+[2.5]=15

Thus, the total profit earned is $15 which is higher than the two tire pricing in the economy.

Answer 32

(e)

To determine

The three tire pricing system.

Answer 33

(e)

Expert Solution

Explanation of Solution

The three tire pricing system can be introduced by splitting the total demand curve into four parts. Above the marginal revenue and below the marginal revenue. It can be done as $2.5 for the first 5 units, $1.5 for the next 5 units, $1 for units above 10 units. Thus, the total quantity sold is 15 units. Thus, the total profit of the firm can be calculated as follows:

Profit=TR−TC=((Price1−Average cost1)×Quantity1+(Price2−Average cost2)×Quantity2+...+(Pricen−Average costn)×Quantityn)=[(2−0.5)×5]+[(1.5−0.5)×5]+[(1−0.5)×5]=[7.5]+[5]+[2.5]=15

Thus, the total profit earned is $15 which is higher than the two tire pricing in the economy.

Answer 34

(e)

Expert Solution

Answer 35

(e)

Expert Solution

Answer 36

Expert Solution

Answer 37

(f)

To determine

The tire pricing system that declines from $2.40 to lower.

(f)

Expert Solution

Explanation of Solution

The price for the first unit will be $2.40 and it declines by $0.10 for each additional units sold in the market. When the strategy goes on, the last unit price will be equal to the marginal cost of production which is $0.50. This implies that the total number units sold by the seller will be equal to 20 units and the pricing system followed by the seller will be a 20 tier pricing system. Thus, the total profit earned by the seller can be calculated as follows:

Profit=[(2.40−0.50)+(2.30−0.50)+(2.20−0.50)+(2.10−0.50)+(2.00−0.50)+(1.90−0.50)+(1.80−0.50)+(1.70−0.50)+(1.60−0.50)+(1.50−0.50)+(1.40−0.50)+(1.30−0.50)+(1.20−0.50)+(1.10−0.50)+(1.00−0.50)+(0.90−0.50)+(0.80−0.50)+(0.70−0.50)+(0.60−0.50)+(0.50−0.50)]=[1.90+1.80+1.70+1.60+1.50+1.40+1.30+1.20+1.10+1.00+0.90+0.80+0.70+0.60+0.50+0.40+0.30+0.20+0.10]=19

Thus, the total profit earned from the 20 tire pricing system is equal to $19.

Answer 38

(f)

To determine

The tire pricing system that declines from $2.40 to lower.

Answer 39

(f)

Expert Solution

Explanation of Solution

The price for the first unit will be $2.40 and it declines by $0.10 for each additional units sold in the market. When the strategy goes on, the last unit price will be equal to the marginal cost of production which is $0.50. This implies that the total number units sold by the seller will be equal to 20 units and the pricing system followed by the seller will be a 20 tier pricing system. Thus, the total profit earned by the seller can be calculated as follows:

Profit=[(2.40−0.50)+(2.30−0.50)+(2.20−0.50)+(2.10−0.50)+(2.00−0.50)+(1.90−0.50)+(1.80−0.50)+(1.70−0.50)+(1.60−0.50)+(1.50−0.50)+(1.40−0.50)+(1.30−0.50)+(1.20−0.50)+(1.10−0.50)+(1.00−0.50)+(0.90−0.50)+(0.80−0.50)+(0.70−0.50)+(0.60−0.50)+(0.50−0.50)]=[1.90+1.80+1.70+1.60+1.50+1.40+1.30+1.20+1.10+1.00+0.90+0.80+0.70+0.60+0.50+0.40+0.30+0.20+0.10]=19

Thus, the total profit earned from the 20 tire pricing system is equal to $19.

Answer 40

(f)

Expert Solution

Answer 41

(f)

Expert Solution

Answer 42

Expert Solution

Answer 43

(g)

To determine

The impact of 20 tire pricing on consumer surplus.

(g)

Expert Solution

Explanation of Solution

When the 20 tire pricing policy is followed by the firm, it takes most of the consumers' willingness to pay which means the consumer surplus will be taken by the firm. Thus, it means that the complete consumer surplus of the economy would be captured by the firm as producer surplus, and thus there will be no deadweight loss in the economy too.

Answer 44

(g)

To determine

The impact of 20 tire pricing on consumer surplus.

Answer 45

(g)

Expert Solution

Explanation of Solution

When the 20 tire pricing policy is followed by the firm, it takes most of the consumers' willingness to pay which means the consumer surplus will be taken by the firm. Thus, it means that the complete consumer surplus of the economy would be captured by the firm as producer surplus, and thus there will be no deadweight loss in the economy too.