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Unformatted text preview: Homework Assignment 4 Econ 382, Professor Platt, BYU Due in class, February 9th, 2009 1 Warmup Optional questions. Points earned in this section can offset points lost elsewhere (though the maximum score for the assignment is still 100 points). Credit is only given if you show all steps taken to obtain your answer. 1. Suppose there is a single gas station in the rural town of Sanders, AZ, on I-40. Bob, the gas station owner, knows he has two types of clients: local residents, who are less price sensitive since they would have to travel 30 miles to the nearest competitor, and interstate travelers, who are more price sensitive, since they will be traveling onward to more competitive markets anyhow. Bob figures that in a regular business hour, 1 local resident drops in, with individual demand for gasoline given by q r = 19- 4 P . He also figures that 1 interstate traveler considers stopping in Sanders for gasoline in the same hour, with individual demand given by q t = 11- P . Bob faces a constant marginal cost of gasoline of two dollar per gallon, so his cost function is C ( Q ) = 2 Q . When entry fees are charged, the membership period only lasts for that one purchase. In each of the following pricing schemes, answer the following list of questions, as well as other specific questions provided: • Set up Bob’s maximization problem....
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This note was uploaded on 03/17/2010 for the course ECON 388 taught by Professor Mcdonald,j during the Spring '08 term at BYU.
- Spring '08