Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 19PAA
To determine
The relevant cost for decision making and whether GearNet should produce 250 hubs or 500 hubs.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Hubert owns a plot of land in the desert that isn't worth much. One day, a giant meteorite falls on his property, making a large crater. The event attracts scientists and tourists, and Hubert decides to sell nontransferable admission tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following graphs show daily demand (D) curves and marginal revenue (MR) curves for the two markets. Hubert’s marginal cost of providing admission tickets is zero
Suppose that at first, Hubert charges the same price of $8 per admission in both markets so that the total number of admissions demanded is_______tickets.
Suppose now that Hubert decides to charge a different price in each market. To maximize revenue, Hubert should charge_________per admission in Market A and________per admission in Market B. At these prices, he will sell a total quantity of __________admission tickets per day.
Complete the following table by calculating…
Eric owns a plot of land in the desert that isn't worth much. One day, a giant meteorite falls on his property,
making a large crater. The event attracts scientists and tourists, and Eric decides to sell nontransferable admission
tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following
graphs show daily demand (DD) curves and marginal revenue (MRMR) curves for the two markets. Eric's marginal
cost of providing admission tickets is zero.
PRICE (Dollars per ticket)
20
18
16
9
09
2
0
0 1
Market A
MR
2 3 4 5 6 7 8
QUANTITY (Admission tickets)
Pricing Policy
Nondiscriminatory
Discriminatory
D
0 10
Total Revenue
(Dollars)
PRICE (Dollars per ticket)
20
18
18
14
12
10
8
4
2
0
0
1
low
Market B
Imagine that at first, Eric charges the same price of $8 per admission in both markets so that the total number of admissions
demanded is
Tickets.
Imagine now that Eric decides to charge a different price in each market. To maximize revenue, Eric…
Susan owns a plot of land in the desert that isn't worth much. One day, a giant meteorite falls on her property, making a large crater. The event attracts scientists and tourists, and Susan decides to sell nontransferable admission tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following graphs show daily demand ( DD ) curves and marginal revenue ( MRMR ) curves for the two markets. Susan's marginal cost of providing admission tickets is zero.
Chapter 10 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
Knowledge Booster
Similar questions
- Rajiv owns a plot of land in the desert that isn't worth much. One day, a giant meteorite falls on his property, making a large crater. The event attracts scientists and tourists, and Rajiv decides to sell nontransferable admission tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following graphs show daily demand (D) curves and marginal revenue (MR) curves for the two markets. Rajiv's marginal cost of providing admission tickets is zero. PRICE (Dollars per ticket) 20 18 16 14 12 10 0 0 3 Market A D₁ MR 6 9 12 15 15 21 24 27 30 QUANTITY (Admission tickets) ? PRICE (Dollars per ticket) 20 18 16 0 0 3 Market B MR D 6 9 12 15 18 21 24 27 QUANTITY (Admission tickets) 30arrow_forwardEconomics Questionarrow_forwardOne of the observations that has been made about the pricing of products produced in an industry where production is highly concentrated is that the costs of production can change up or down and yet prices do not change much. The Sweezy model was developed to explain this observation. Present a Sweezy model, show a cost change, and show that the optimal choice for the firm is to leave the product price unchanged. Provide words to explain the basic reason why the price does not move up or down as costs change.arrow_forward
- Suppose that managers at Honda are deciding how to price the new Honda Accord. The managers estimate that their total costs increase by $20,000 for each car they produce. They also estimate the demand curve they face; it is described by the equation: Q = -0.4 P + 16,000, where Q represents the quantity of Honda Accords they will sell and P represents the price they charge in US dollars. We can re-write that demand curve as: P = 40,000 - 2.5 Q. Take every possibly quantity that the managers might choose between and 7,000 in units of 100. For each possible quantity, calculate the associated price the managers would need to charge, the revenue they would earn, and the total costs. You can then calculate profits for each level of quantity. Highlight the cell that contains the highest value of profit. Finally, you can also approximate marginal revenue here as the change in total revenue after the next 100 cars are produced. At what quantity does marginal revenue roughly equal marginal cost?…arrow_forwardSuppose there are two types of cable TV viewers. The first type places a high value on sports channels (e.g., ESPN, Fox Sports, and the Golf Channel) and a low value on all other channels. The second type places a high value on music channels (e.g., VH1, MTV3, and CMT) and a low value on all other channels. In this case, we would expect cable operators to: use fixed-cost pricing. use "à la carte" pricing. sell sports and music channels in one bundle to both types of viewers. sell only sports channels to the first type of viewers and sell only music channels to the second type of viewers.arrow_forwardSuppose that, prior to other firms entering the market, the maker of a new smartphone (Way Cool, Inc.) earns $80 million per year. By reducing its price by 60 percent, Way Cool could discourage entry into “its” market, but doing so would cause its profits to sink to −$2 million. By pricing such that other firms would be able to enter the market, Way Cool’s profits would drop to $30 million for the indefinite future. In light of these estimates, do you think it is profitable for Way Cool to engage in limit pricing? Is any additional information needed to formulate an answer to this question? Explain.arrow_forward
- The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $18, $14, $12, $6, and $3 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $12, $14, $18, $28, and $34 (one buyer at each price). For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied. Quantity Demanded Quantity Supplied (widgets) (widgets) Price ($ per widget) $3 $6 $12 $14 $18 $28 $34 In this market, the equilibrium price will be per widget, and the equilibrium quantity will be 4 5 0 3 1 2 widgets.arrow_forwardSuppose that a technological innovation decreases BYOB's costs so that it now faces the marginal cost (MC) and average cost (AC) given on the following graph. Specifically, the technological innovation causes a decrease in average fixed costs, thereby lowering the AC curve and moving the MC curve. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss. PRICE (Dollars per unit) 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 0 MC 0.5 MR AC 1.0 1.5 2.0 2.5 3.0 QUANTITY (Thousands of cans of beer) 3.5 D 4.0 Monopoly Outcome Profit Loss ?arrow_forwardThe widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $26, $14, $10, $5, and $3 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $10, $14, $26, $34, and $42 (one buyer at each price). For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied. Price Quantity Demanded Quantity Supplied ($ per widget) (widgets) (widgets) $3 $5 $10 $14 $26 $34 $42 In this market, the equilibrium price will be per widget, and the equilibrium quantity will be widgets.arrow_forward
- Based on Zangwill (1992). Murray Manufacturing runs a day shift and a night shift. Regardless of the number of units produced, the only production cost during a shift is a setup cost. It costs $8000 to run the day shift and $4500 to run the night shift. Demand for the next two days is as follows: day 1, 2000; night 1, 3000; day 2, 2000; night 2, 3000. It costs $1 per unit to hold a unit in inventory for a shift. a. Determine a production schedule that minimizes the sum of setup and inventory costs. All demand must be met on time. (Note: Not all shifts have to be run.) b. After listening to a seminar on the virtues of the Japanese theory of production, Murray has cut the setup cost of its day shift to $1000 per shift and the setup cost of its night shift to $3500 per shift. Now determine a production schedule that minimizes the sum of setup and inventory costs. All demand must be met on time. Show that the decrease in setup costs has actually raised the average inventory level. Is this…arrow_forwardBack to Assignment Attempte 2. The market for EpiPens Consider the pharmaceutical company Mylan that produces epinephrine injection devices called EpiPens. In the presence of other firms producing substitutes for this good, the price of EpiPens is $150. Now suppose that competitors to Mylan no longer produce epinephrine injection devices, so Mylan now has pricing power in this market. As the economist on staff at Mylart, you are charged with the task of figuring out what your company's new pricing strategy should be. The following graph shows the marginal cost (MC), which is essumed to be constant, and the average total cost (ATC) of Mylen. The graph also shows JAMOD JANUALUL SEU UuU aun 324D (gw) ann an AM, PUIŠJEW) Din pue suadida (0) (0) ANDA SUPwar 241 On the graph, use the grer point (star symbol) to indicate the quantity of EpiPere demanded in Mylan continues to charge $150. Deshed drop lines will sudomsically extend to both, exes. e fat par JECH 342 AN Keep the Highest/3 COP…arrow_forwardDiscuss economies of scale and how average cost changes as output increases. What pricing strategy should a firm adopt while they are experiencing economies of scale? 250 words pleasearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education