chap011 - Chapter 11: Answers to Questions and Problems 1....

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Chapter 11: Answers to Questions and Problems 1. a. Since E = E F = E M , ( 29 1.5 $75 3 $75 $225 1 1 1.5 E P MC E - = = = = + - . b. ( 29 ( 29 ( 29 2 1.5 $75 $75 1.5 $75 $112.50 1 1 1 2 1.5 F M F M E NE P MC E NE - = = = = = + + + - . c. ( 29 ( 29 20 1.5 30 $75 $75 $75 $77.59 1 1 1 20 1.5 29 F M F M E NE P MC E NE - = = = = = + + + - . 2. a. P = $60, Q = 4, and profits = 4($60 – $20) = $160. b. Charge the maximum price on the demand curve starting at $100 down to $20 for each infinitesimal unit up to Q = 8 units. Profits are 8($100 – $20)(.5) = $320. c. Charge a fixed fee of $320 and a per-unit charge of $20 per unit to earn total profits of $320. d. Create a package of 8 units and sell the package for $480. Total profits are $320. 3. a. Second-degree price discrimination. b. $8 + 2($4) = $16. c. Total profits under perfect price discrimination are 5($18 – 8)(.5) = $25, so this strategy would lead to an extra $9. 4. a. ( 29 1 1 1 2 $10 2 $10 $20.00 1 1 2 E P MC E - = = = = + - and 2 2 2 6 6 $10 $10 $12.00 1 1 6 5 E P MC E -   = = = =   + -   . b. Here, there are two different groups with different (and identifiable) elasticities of demand. In addition, we must be able to prevent resale between the groups. 5. a. Charge a fixed fee of $160, plus a per-unit charge of $20 per unit. b. The optimal per-unit price is determined where MR = MC, or 100 - 40Q = 20. Solving yields Q = 2 units and P = $60. The profits at this output and price are $120 - $40 = $80. Thus, you earn $80 more by two-part pricing. Managerial Economics and Business Strategy, 7e Page 1
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6. a. The inverse demand function is P = 200 – 4Q . Marginal cost is $120. The optimal number of units in a package is that output where price equals marginal cost. Thus we set 200 – 4Q = 120 and solve to get the optimal number of units in a package, Q = 20 units. b. The total value to a consumer of the 20 units, which is $3,200 (computed as (.5)
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This note was uploaded on 05/26/2011 for the course BE 401 taught by Professor Valero,m during the Spring '08 term at University of Michigan-Dearborn.

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chap011 - Chapter 11: Answers to Questions and Problems 1....

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