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SectionWS15 - Econ 100A Worksheet#15 Pricing with Market...

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Econ 100A - Worksheet #15 Pricing with Market Power Exercise 1 Calloway Shirt Manufacturers sells knit shirts in two sub-markets. In one market, the shirts carry Calloway’s popular label and breast logo and receive a substantial price premium. The other sub-market is targeted toward more price conscious consumers who buy the shirts without a breast logo, carrying the name Archwood. 1) The retail price of the shirts carrying the Calloway label is $42. Calloways’s market research indicates a price elasticity of demand of demand for the high priced shirt of -2 and and elasticity for the Archwood shirts of -4. Moreover, the research suggests that both elasticities are constant over broad ranges of output. What price should Calloway Shirt Manufacturers charge for the Archwood shirts in order to maximize profit while practicing third degree price discrimination? 2) The demand for the Calloway shirts is D C ( p ) = 10000 p 2 and the demand for the Archwood shirts is D A ( p ) = 10000 p 4 . The constant marginal cost of a shirt is $10.
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