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Wk 7 - Chapter 13 and Chapter 14 Problems

# The demand function for the computer is estimated to

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Unformatted text preview: The demand function for the computer is estimated to be P = 2,500 – 0.0005Q The marginal (and average variable) cost of producing the computer is \$900. a) Compute the profit-maximizing price and output levels assuming Pear acts as a monopolist for its product. P = 2500 - .0005Q and MC = 900 and TR = P∙Q, so TR = 2500Q - .0005Q 2 MR = 2500 - .001Q = 900 at the most profitable output. Q* = 1,600,000 units, so P* = 2500 - .0005(1,600,000) = \$1700/unit b) Determine the total contribution to profits and fixed costs from the solution generated in Part (a). Profit contribution = 1700(1,600,000) - 900(1,600,000) = \$1,280,000,000 Pear Computer is considering an alternative pricing strategy of price skimming. It plans to set the following schedule of prices over the coming two years: Time Period Price Quantity Sold 1 \$2,400 200,000 2 2,200 200,000 3 2,000 200,000 4 1,800 200,000 5 1,700 200,000 6 1,600 200,000 7 1,500 200,000 8 1,400 200,000 9 1,300 200,000 10 1,200 200,000 c. Calculate the contribution to profit and overhead for each of the 10 time periods and prices. Profit Contribution is given by the TimePeriodPrice(Q) - Cost(Q)Contribution to Profit Time Period Price Quantity Sold Profit Contribution 1 \$2,400 200,000 2400(200,000) - 900(200,000) = \$300,000,000 2 2,200 200,000 2200(200,000) - 900(200,000) = Myisha Coleman May 26, 2013 \$260,000,000 3 2,000 200,000 2000(200,000) - 900(200,000) = \$220,000,000 4 1,800 200,000 1800(200,000) - 900(200,000) = \$180,000,000 5 1,700 200,000 1700(200,000) - 900(200,000) = \$160,000,000 6 1,600 200,000 1600(200,000) - 900(200,000) = \$140,000,000 7 1,500 200,000 1500(200,000) - 900(200,000) = \$120,000,000 8 1,400 200,000 1400(200,000) - 900(200,000) = \$100,000,000 9 1,300 200,000 1300(200,000) - 900(200,000) = \$ 80,000,000 10 1,200 200,000 1200(200,000) - 900(200,000) = \$ 60,000,000 Total \$1,650,000,000...
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