Exam3 - DO NOT TAKE THIS EXAM APART Student Name TEST III...

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DO NOT TAKE THIS EXAM APART Student Name________________________ TEST III Prof. Vitaliano Managerial Economics Fall 2009 Answer Four Questions, but only four (25 pts each). Answer every bullet. Show All Work. Circle the number of the four questions you answer. 1 . In the city of Pittsburgh there are currently 100 small dry cleaning establishments, each of which has the same (per day) short-run total cost curve: C = 625 + 2q + q , where q is the 2 number of garment orders (a typical assortment of clothing items) cleaned per firm. The market demand curve in this competitive industry is Q = 993.75 - 4.6875P , where P is the price per dry cleaning order and Q = 3 q. (The demand curve should yield whole numbers as answers). ! Find the equation of the short-run industry supply curve and determine equilibrium output and price for the firm and entire market. (15) ! Assuming the minimum point on the LAC and SAC coincide, what is the long-run output per firm, price per order, and the number of firms? Input prices (wages, chemicals, etc do not vary as industry output varies.) Diagram the short-run and long run equilibrium supply and demand. (10) 2 . Picadilly Café on Cape Cod serves breakfasts and lunch to locals and tourists. A study commissioned by the Cape Cod Chamber of Commerce estimates the tourist elasticity of demand T L for meals 0 = - 2 and for locals 0 = - 4. Picadilly’s owner, Mr Felix, understands that he could enhance his profits if he could charge different prices to locals and tourists. Assume his marginal and average variable cost per meal is $6, which doesn’t vary with the number of meals. ! Explain how Mr Felix could institute a system of third degree price discrimination when his menu shows only one set of prices. 3. Curvy Bodies Fitness Clubs caters to women who wish to exercise for weight loss and health. One type of customer is young and athletic, and very keen on appearance and fitness. The other class of customers are older, overweight women with families and careers and little time to work out. The estimated per capita demand curve per time period of each type of customer is as
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