1001nmkeyps3 - ECON 1001 C/D/E/F/G/H/I- INTRODUCTION TO...

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ECON 1001 C/D/E/F/G/H/I- INTRODUCTION TO ECONOMICS I DR. DEMURGER, DR. LO AND DR. WAN ANSWER KEY TO PROBLEM SET #3 HARDCOPY SUBMISSION DEADLINE: 4PM, MONDAY, DEC 01, 2008 For your information, Jennifer graded question #1 and Clifford graded question #2. If you have any questions regarding this key, please contact Clifford on givencana@yahoo.ca or Jennifer on efshan@hkucc.hku.hk . Question 1 You own and operate a dry cleaning business. You are the only dry cleaning service in the area and your goal is to maximize profit. You have 8 potential customers per day, each with a reservation price to clean his/her suit as shown below. The cost of cleaning is constant, at $4.25 per suit. Reservation Price ($ Customer per cleaning) A 6 B 5.8 C 5.6 D 5.4 E 5.2 F 5 G 4.8 H 4.6
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A) If you charge a single price to clean suits, CUSTOMER RESERVATION PRICE TOTAL REVENUE MARGINAL REVENUE A 6 6 6 B 5.8 11.6 5.6 C 5.6 16.8 5.2 D 5.4 21.6 4.8 E 5.2 26 4.4 F 5 30 4 G 4.8 33.6 3.6 H 4.6 36.8 3.2 i) What is the profit-maximizing price? $5.2 ii) How many suits would you clean? 5 iii) How much profit would you earn? 26 – (4.25 X 5) = $4.75 B) How much consumer surplus is generated each day at the profit-maximizing price? Consumer surplus generated: 0.8 + 0.6 + 0.4 + 0.2 = $2 C) What is the socially efficient number of cleanings? 8 cleanings D) Suppose consumers A, B, C and D are women and consumers E, F, G and H are men. If you could segment the male-female market perfectly and charge a different price for cleaning suits to men and women,
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This note was uploaded on 09/06/2010 for the course FBE ECON1001 taught by Professor Dr.demurger during the Fall '08 term at HKU.

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1001nmkeyps3 - ECON 1001 C/D/E/F/G/H/I- INTRODUCTION TO...

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