Managerial Economics and Business Strategy, 5e
Page 1
Chapter 11: Answers to Questions and Problems
1.
a.
Since
E = E
F
= E
M
,
()
1.5
$75
3 $75
$225
11
1
.
5
E
PM
C
E
−
⎛⎞
⎛
⎞
==
=
=
⎜⎟
⎜
⎟
+−
⎝⎠
⎝
⎠
.
b.
( )
21
.
5
$75
$75
1.5 $75
$112.50
1
2
1
.
5
FM
EN
E
C
E
−
⎛⎞⎛
⎞
=
=
=
⎜⎟⎜
⎟
++
+
−
⎝⎠⎝
⎠
.
c.
( )
20
1.5
30
$75
$75
$75
$77.59
1
2
0
1
.
5
2
9
E
C
E
−
⎞
=
=
=
⎟
+
−
⎠
.
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 perunit 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.
Seconddegree 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
2
E
C
E
−
=
=
⎜⎟ ⎜⎟
and
2
2
2
66
$10
$10
$12.00
6
5
E
C
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 perunit charge of $20 per unit.
b.
The optimal perunit 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 twopart pricing.
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Michael R. Baye
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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 Spring '11
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 Supply And Demand, Michael R. Baye

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