Application_Problems_Ch07 - Chapter 7: Applications...

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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 profit-maximizing 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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Application_Problems_Ch07 - Chapter 7: Applications...

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