chap011s - Chapter 11: Answers to Questions and Problems 1....

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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 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 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 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.
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Page 2 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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chap011s - Chapter 11: Answers to Questions and Problems 1....

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