Joe's Plain-o Bikes makes and sells a single model of a basic single speed bike. Joe sells the bike to low-end bike shops for $75. They in turn retail the bike for $150. Joe's cost of making each bike is $25 and his overhead averages out to around another $25. Answer the following:
Question 1 - What is Joe's profit (or margin) per bike?
Question 2 - What is Joe's producer surplus per bike?
Question 3 - What happens to consumer and producer surplus if he lowers the price to zero?
The bus service the Meanwells began is the only one in their small city. We'll also assume there's no other alternative form of public transportation.
Question 4 - For each of the determinants of elasticity, speak directly to its impact on the price sensitivity of the bus service.
Question 5 - Outline one proactive step the Meanwells might take to reduce the price sensitivity of their bus service so they can increase the price charged?
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