Homework Week 5 - Conner - BUS5421 Managerial Economics...

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BUS5421 Managerial Economics Homework Week 1 Stephen Conner August 1, 2016 Problem 12 -1 Parking Lot Optimization Suppose your elasticity of demand for your parking lot spaces is -2, and price is $8 per day. If your MC is zero and your capacity is 80% full at 9AM over the last month, are you optimizing? The answer to this question is no. To determine whether or not you are optimizing on a fixed asset with fixed capacity, you need to look at marginal cost and marginal revenue. In this case, MC = $0, so that puts MR = $8. Based on the fact that MR > MC, the owner of this garage should lower the price to fill to capacity, so in this case, the garage owner is not optimizing . Problem 14-4 Microwave Ovens A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating the auto-defrost feature.

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