# Homework 432 - quantity. 4. Your answer for (2) will have...

This preview shows page 1. Sign up to view the full content.

Economics 432 Homework #1: Market Areas Economics 432- Spring 2011 Straightlinetown is a town where everybody and everything is on one straight line, which goes on for miles and miles. Population density is 20 people per mile. The demand for clocks from Fergie’s Clock Shop in Straightlinetown is one per person, if the total price (including transportation costs) is less than \$100. Transportation costs are \$2/mile. 1. Find the market area for Fergie as a function of the price she charges . 2. Derive Fergie’s clock demand curve (quantity sold as a function of price). 3. Derive the total revenue(=p 0 *Q) as a function of the quantity sold. This means you have to invert the answer you got for (1) and get price as a function of quantity, then multiply by
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: quantity. 4. Your answer for (2) will have the form gQ+hQ 2 , where g and h are numbers. This means that marginal revenue =g+2hQ. Write down the marginal revenue function. 5. Total costs for Fergie are 0.2Q 2 +900. Therefore marginal costs are 0.4Q. Equate marginal revenue and marginal costs to find profit maximizing Q. 6. Use this, and your calculations in (3) to find the profit maximizing price. 7. Now use (1) to find the market area. . 8. Repeat everything, but with transport costs = \$4/mile. What are the effects on price, quantity and market area? Interpret. 9. Reassuming the \$2 transport costs, if entry occurs until profits become zero, what will the market area be?...
View Full Document

## This note was uploaded on 02/17/2011 for the course ECON 432 taught by Professor Staff during the Spring '08 term at Pennsylvania State University, University Park.

Ask a homework question - tutors are online