Econ 100A - Worksheet #15Pricing with Market PowerExercise 1Calloway Shirt Manufacturers sells knit shirts in two sub-markets. In one market, the shirts carry Calloway’s popular label andbreast logo and receive a substantial price premium. The other sub-market is targeted toward more price conscious consumerswho 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 ofdemand of demand for the high priced shirt of -2 and and elasticity for the Archwood shirts of -4. Moreover, the researchsuggests that both elasticities are constant over broad ranges of output. What price should Calloway Shirt Manufacturerscharge for the Archwood shirts in order to maximize profit while practicing third degree price discrimination?2)The demand for the Calloway shirts isDC(p) =10000p2and the demand for the Archwood shirts isDA(p) =10000p4.Theconstant marginal cost of a shirt is $10.
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