Price Theory Industrial Analysis (1).pdf - Running head PRICE THEORY INDUSTRIAL ANALYSIS 1 Price Theory Industrial Analysis Step 1 Derive the combined

# Price Theory Industrial Analysis (1).pdf - Running head...

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Running head: PRICE THEORY INDUSTRIAL ANALYSIS 1 Price Theory Industrial Analysis Step 1 : Derive the combined demand function for the market. (5 marks) QT (P) = 1500 P Tourist Demand QL (P) = 4000 − 4P Local Demand Combined Demand Function ? 𝑇 (?) + ? 𝐿 (?) = 1,500 P + 4,000 4P ? 𝑪 (?) = 𝟓, 𝟓?? − 𝟓? Step 2: Using the information provided in the scenario, derive the tourism operator’s total cost function. Exclude the cost of the annual license fee. (2 marks). Total Cost Function Cost of providing tickets × Number of tickets Total Cost Function = \$20 (5,500 -5P) = 110,000 100P 𝑪 𝑻 (?) = ???, ??? − ???? Step 3 : Assume that the profit-maximizing price is below the “choke - price” for locals. Find the profit - maximizing quantity and price (Q and P). Is this price consistent with the assumption? Briefly explain. (9 marks) If profit maximizing price is above the “choke price point for the locals” then the locals will not demand anything above the price. The demand function will be given by ? 𝐿 (?) + ? 𝑇 ? = 0 + 1500 − ? ? 𝐶 (?) = 1,500 P Total Revenue = PQ P= 1,500 Q PQ = 15000Q - ? 2 𝑑? 𝑑? (15000Q - ? 2 ) = 1,500 2Q Marginal Cost ?𝐶 = 𝐶? = 20Q 𝑑𝐶? 𝑑? (20Q) = 20 Profit Maximization is where the marginal revenue is equal to marginal cost

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PRICE THEORY INDUSTRIAL ANALYSIS 2 1,500 -2Q =20 1,500 -20 = 2Q 1480 2 = ? Q= 740 P = 1,500 Q P = 1,500 740 P= 760 Choke Price for the locals is ? 𝐿 (?) = 0 0= 4,000 4P P = 1, 000 Since profit maximizing price < choke price Hence, the price is not consistence with the assumption Step 4 : Assume that the profit-maximizing price is above the “choke - price” for locals. Find the profit - maximizing quantity and price (Q and P). Is this price consistent with the assumption? Briefly explain. (9 marks) The combined Demand Function ? 𝐶 (?) = 5,500 − 5? ? 𝑪 (?) − 𝟓, 𝟓?? = 𝟓? 5,500 5 + ? 5 = ?
• Spring '17
• HERICK ONDIGO

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