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Question
Year
Aircraft
Sales
Average
Price
Disposable Personal
Income
200
6
525
7,200
610
200
7
450
8,000
610
200
8
400
8,000
590
a. Estimate the arc pri
One subsidiary sells its output, Q1, exclusively to the other subsidiary that is used
in the production of Q2, for final sale in an external market. Assume further that
there exists no other demand for Q1; that is, there is no external market for the
inte
$1,500 $400 appeal. In reality, however, this third-degree price discrimination in
fact results in increased company profits. Definition: Third-degree price
discrimination occurs when firms segment the market for a particular good or
service into easily i
charging a single price per visit. Commodity Bundling Another form of seconddegree price discrimination is commodity bundling. Commodity bundling involves
combining two or more different products into a single package, which is sold at a
single price. Lik
amount of Q2 produced will be in fixed proportion to Q1. The price of Q1* is P2
and the price of Q2 is P1. Problem 11.15. Suppose that a firm produces two units
of Q2 for each unit of Q1. Suppose further that the demand equations for these
two goods are M
product? b. Verify that the selling price calculated in part a represents a 25%
markup over the estimated per-spool cost of production. Solution a. At a
production level of 500 spools, Nimrods per-unit fixed cost allocation is m P ATC
ATC = - P ATC m = +
is straightforward. Different individuals or groups of individuals with different
demand functions will have different marginal revenue functions. Since the
marginal cost of producing the good is the same, regardless of which group
purchases the good, the
its product at a different, usually lower, price in the foreign market than it does in
its home market. Recall that when resale between two markets is not possible,
the monopolist will sell its product at a lower price in the market in which demand
is mor
the day. The demand for airline travel is greater during holiday seasons than at
other times. During such peak periods it becomes difficult, if not impossible, to
satisfy the demands of all customers. Thus the profit-maximizing firm will charge a
higher p
provide an incentive for firms to leave. It is speculative whether the influx or
outflow of firms into the industry weakens or strengthens the market power of
the dominant firm. In large part, this will depend on the circumstances explaining
the firms ris
Mountain? b. What prices should the company charge for adult and childs ski-lift
tickets? c. Assuming that the second-order conditions for profit maximization are
satisfied, what is Copperlines total profit? Solution a. Total profit is given by the
expres
capacity, the cost of additional capital investment ought to be borne by peakperiod users. This tends to run contrary to the common practice on trains and toll
bridges of offering multiple-use discounts to commuters traveling during rush
hour, such as low
derived from the sale of the related product. If the second term on the right-hand
side of Equation (11.31) is MC TR Q TR Q 2 2 2 1 2 = + MC TR Q TR Q 1 1 1 2
1 = + p Q TR Q TR Q TC 2 Q 2 2 1 2 2 2 =+- = 0 p
Q TR Q TR Q TC 1 Q 1 1 2 1 1 1 =+-= 0 p = ( )
might be a consumer electronics company that produces automobile taillight
bulbs and flashlight bulbs on the same assembly line. In this case, the demand
functions are given by the expressions (11.33a) (11.33b) where Q1/P1 and
Q2/P2 are negative. The tota
identify members of either group, it does know that each group values the
components of the package differently.To keep the example simple, assume that
TC Q = + 15 5 Q P = - 26 5 0 5 . . price discrimination 431 there are an equal
number of members in eac
OTHER PRICING PRACTICES This chapter has so far focused on the pricing behavior
of profit-maximizing firms operating under somewhat unique circumstances. In
each case, the firms pricing practices were predicated on subtle economic
concepts. It was also as
condition in Equations (11.17), it is easy to see that the firm will charge the same
price in the two markets only if e1 = e2. When e1 e2, the prices in the two
markets will not be the same. In fact, when e1 > e2, the price charged in the first
market wil
package sold? What is the dealerships total profit? Solution. In Problem 11.3, we
saw that the profit-maximizing price for the package was equivalent to the sum of
the prices the third group was willing to pay for each option separately. If we were
to fol
leadership. Barometric Price Leadership We saw in our discussion of the kinked
demand curve that in oligopolistic industries, marginal cost may fluctuate within a
fairly narrow range without evoking a price change. The reason for this is the
discontinuity
$750, then only members of the second group will purchase entertainment and
the hotel will generate revenues of only $750. On the other hand, if the hotel
charges $500, both groups will purchase entertainment and generate revenues of
$1,000. Thus, whether
- 10 0 5. 458 pricing practices b. The firms total profit is Problem 11.16. Suppose
that a firm jointly produces two goods. Good B is a by-product of the production
of good A. The demand equations for the two goods are The firms total cost
equation is a.
entertainment and charging a single package price, the hotel has enhanced its
profits by $250 per group member. The hotel has extracted the entire amount of
consumer surplus from members of the second group and some consumer surplus
from members of the fi
ascertain the optimal prices and output levels of each product manufactured
jointly, rather than pricing each product independently. The problem may be
formally stated as follows. Consider the demand for two products produced by the
same firm. If these tw
intermediate products that are produced and sold between divisions of a parent
company. For example, what price should one division of a company that
produces, say, ignition systems, charge another division that assembles
automobiles. The optimal pricing
demands, optimal pricing of two or more products with independent demands
that are jointly produced in variable proportions, and optimal pricing of two or
more products with independent demands that are jointly produced in fixed
proportions. Definition: M
Q2, the company has estimated the following demand equations: The total cost
equation for producing the two products is a. As before, Gizmo Brothers is a
profit-maximizing firm. Give the profitmaximizing levels of output for Tommy
Gunn and for Bonzey. How
company in the 1980s, Parallax management decided to divide the company into
two separate profit centers to control coststhe telescope division and the lens
division. a. What is the profit-maximizing price and quantity for Parallax
telescopes? b. What is