MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Question
Chapter 11, Problem 3CACQ
(A)
To determine
The economic term for the firm's pricing strategy is to be explained.
(B)
To determine
The profit earn from this strategy is to be calculated.
(C)
To determine
The additional profit earns if there was perfectly price discrimination is to be ascertained.
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You are the manager of a firm that charges customers $16 per unit for the first unit purchased, and $12 per unit for each additional unit purchased in excess of one unit. The accompanying graph summarizes your relevant demand and costs.
a. What is the economic term for your firm’s pricing strategy?
multiple choice
Third degree price discrimination
Fourth degree price discrimination
First degree price discrimination
Second degree price discrimination
b. Determine the profits you earn from this strategy.
$ c. How much additional profit would you earn if you were able to perfectly price discriminate?Instructions: In solving this problem, assume the firm cannot sell fractions of a unit.
$
Q2.
Your brother is considering two cell phone providers i.e. UFONE and MOBILINK.
UFONE charges Rs.520 (super card) per month for the service regardless of the number of phone
calls made. MOBILINK does not have a fixed service fee but instead charges Rs. 1 per minute for
calls. Your brother's monthly demand for minutes of calling is given by the equation
Q = 150 - 50P, where P is the price of a minute
a. With each service provider, what is the cost to your brother of an extra minute on the
phone?
b. In light of your answer to (a) part, how many minutes would your brother talk on the
phone with each service provider?
c. How much would he end up paying each provider every month?
You are a pricing analyst for QuantCrunch Corporation, a company that sells a statistical software package. To date, you only have one client. A recent internal study reveals that this client’s inverse demand for your software is P=1500-5Q and that it would cost you $1,000 per unit to install and maintain software at this client’s site. What is the profit that results from two-part pricing?
(Hint: set the per-unit price for each unit of the software installed and maintained equal to marginal cost; and charge a fixed “licensing fee” that extracts all consumer surplus from the client)
Chapter 11 Solutions
MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
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