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Chapter 7: Applications Problems
1. Using the theory of group pricing, describe why a sports franchise might want to
sell differently priced tickets for a single game, presuming each seat can be
provided at the same marginal cost.
2. Some computer software is sold at a steep discount to university students
through student bookstores. This is especially evident for technical software used
for solving problems in the areas of mathematics, engineering, and statistics.
Using the principles of group pricing, carefully explain why some computer
software manufacturers may have an incentive to discount their prices to
students.
3. A lawn care company faces a demand curve given by P = 11  Q, where P is the
price per square foot of lawn for a season's service, and Q is the square feet
serviced per season. The average total cost and marginal cost of servicing a
square foot for the season is a constant $6 per square foot.
a. Calculate the profitmaximizing price the company should charge. What
are the resulting profits or losses?
b. Now suppose the company is able to practice personalized pricing.
Compute the resulting profits and the range of prices. (Hint: A graph may
be useful.)
c.
Suppose, instead, that the lawn care company divides its market above
into two segments  the west side, where incomes are relatively high, and
the east side, where incomes are relatively low. Explain the advantage of
pricing differentially. Discuss how and why prices would differ from the
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 Fall '10
 SNYDER

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