fexams12.doc - Name ApEc 3002 Spring 2012 Final Exam 1 Define each of the following terms(3 a optimal plant size(3 b experience good(3 c internal rate

fexams12.doc - Name ApEc 3002 Spring 2012 Final Exam 1...

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Name ______________________________ ApEc 3002 Spring 2012 Final Exam 1.Define each of the following terms:(3)a.optimal plant size(3)b.experience good(3)c.internal rate of return(3)d.skimming (pricing policy)2.Two-part pricing policies are often used as a means for extracting consumer surplus and, in some cases, restricting access to a product or services. Explain the basic mechanics of a two-part pricing policy and illustrate how they are implemented in a real-world example of your choosing.(6)
3.You manage a tomato processing firm in California that produces and markets a well-known branded of canned tomatoes and also sells canned tomatoes in a perfectly competitive generic market. You have hired a consultant to estimate a demand function for your branded product and a cost function for producing branded or generic canned tomatoes. (The cost is the same for branded and generic tomatoes, so the cost function applies for both products.) The results are:Demand:Q = 20,000 – 2,500PInverse Demand:P = 8 – 0.0004QCost:C = 10,000 + 3QT+ 0.0001QT2Where Qis daily demand for the branded product in cases, Pis the wholesale price for the branded product (\$/case), Cis the total daily cost, and QTis total production of branded and generic tomatoes. The price of tomatoes in the generic market is \$5/case.Specify the profit function for your firm when it sells in both the branded and generic markets. Derive two first order conditions for maximizing profit. Then solve for the quantity produced for sale in each market and the price in the branded market. [HINT: You should have two quantities in your profit function – Qis the quantity produced for the branded market and QTis the total amount produced. Quantity sold in the generic market is QT– Q.] (4)a. Write the overall daily profit function for the firm under the assumption that the company will sell in both the branded and generic markets.(4)b. Derive the two first order conditions for maximizing profit. (You do not need to check second order conditions.)(4)c.Optimal values of: QTQQT- QP 2

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