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# chap011 - Chapter 11 Answers to Questions and Problems 1 E...

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Chapter 11: Answers to Questions and Problems 1. a. Since E = E F = E M , 1.5 \$75 3 \$75 \$225 1 1 1.5 E P MC E . b. 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. 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. 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.
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chap011 - Chapter 11 Answers to Questions and Problems 1 E...

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