problem15S06key

# problem15S06key - Homework Problem Set#15 E303 Davis Spring...

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Homework Problem Set #15 KEY E303 Davis, Spring 2006 1. Joe Holiday is a monopoly provider of Fishing Reels in a remote fishing village on a barrier island off the Gulf Coast. Currently he is selling is BassMaster reels for \$50 each. Joe doesn’t know the precise demand function for fishing reels, but he estimates price elasticity of demand to be -2. If the reels cost Joe \$30 each, is he maximizing profits? If not, what would be the profit maximizing price? Is \$50 a profit maximizing price? Y/ N (circle one) Profit Maximizing Price _______P = MC/(1+1/ η ) = 30/(1-1/2) = 60 2. Consider the inverse demand relationship P = 21-Q. The total cost function is TC = 50 – Q. a. What is the optimal price, quantity and maximum profits available to the seller, if the seller can post only a single price to all consumers? MR = 21-2Q = 1 implies that Q = 10, so P = 21-10 = 11 and profits are (\$11(10) – [50-\$1(10)] = \$55.

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problem15S06key - Homework Problem Set#15 E303 Davis Spring...

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