Q&A Hero

Q: The market structure of the local boat industry is best characterized by monopolistic competition. Homer's Boat Manufacturing is one of the producers in the local market. The demand for Homer's Boats is:Qd = 5000 - P P = 5000 - Qd.The resulting marginal revenue curve isMR(Qd) = 5000 - 2Qd.Homer's cost function is:C(Q) = 3Q2 MC(Q) = 6Q.Determine Homer's profit maximizing level of output and the price charged to customers. Is this a long-run equilibrium?

Q: The market structure of the local pizza industry is best characterized by monopolistic competition. One Guy's Pizza is one of the producers in the local market. The demand for One Guy's Pizza is:Qd = 225 - 10P P = 22.5 - 0.1Qd.The resulting marginal revenue curve isMR(Qd) = 22.5 - 0.2Qd.One Guy's cost function is:C(Q) = 0.15Q2 MC(Q) = 0.3Q.Determine One Guy's profit maximizing level of output and the price charged to customers. Is this a long-run equilibrium?

Q: A firm operating in a monopolistically competitive market faces demand and marginal revenue curves as given below: P = 10 - 0.1Q MR = 10 - 0.2Q The firm's total and marginal cost curves are: TC = - 10Q + 0.0333Q3 + 130 MC = -10 + 0.0999Q2, where P is in dollars per unit, output rate Q is in units per time period, and total cost C is in dollars. a. Determine the price and output rate that will allow the firm to maximize profit or minimize losses. b. Compute a Lerner index.

Q: What condition may provide for a relatively small degree of inefficiency under monopolistic competition? A) There is a single seller and no product differentiation. B) The marginal cost of production is less than the market price. C) The demand curve is relatively elastic so that the price is near the long-run minimum average cost. D) There is only one buyer in the market.

Q: What characteristic of monopolistic competition may help to offset the inefficiency of this market structure? A) Free entry and exit imply that firms produce at minimum long-run average cost. B) Consumers may value the product diversity that allows them to choose from a wide variety of differentiated products. C) Consumers may feel better about the inefficiency if they know that firms earn zero profits. D) Consumers may prefer this outcome to monopoly or monopsony.

Q: Why don't some firms in monopolistic competition earn losses in the long run? A) The firms have enough monopoly power to ensure they always earn profits. B) Free entry allows enough firms to remain in the market and maintain the critical mass of firms required to attract customers. C) Free exit implies that any unprofitable firms leave the market in the long run. D) In the long run, firms will build enough brand loyalty among customers to ensure a profitable level of sales.

Q: The authors cited statistical evidence that the price elasticity of demand for Royal Crown cola is -2.4, and the price elasticity of demand for Coke is roughly -5.5. Which firm likely has stronger brand loyalty among customers that provides greater potential for monopoly power in the cola market? A) Coke B) Royal Crown C) Both firms should have identical monopoly power D) We do not have enough information to answer this question.

Q: Although firms earn zero profits in the long run, why is the outcome from monopolistic competition considered to be inefficient? A) Price exceeds marginal cost. B) Quantity is lower than the perfectly competitive outcome. C) Goods are not identical. D) A and B are correct. E) B and C are correct.

Q: Excess capacity in monopolistically competitive industries results because in equilibrium A) each firm's output level is too great to minimize average cost. B) each firm's output level is too small to minimize average cost. C) firms make positive economic profit. D) price equals marginal cost.

Q: Which of the following is true in long-run equilibrium for a firm in monopolistic competition? A) MC = ATC. B) MC > ATC. C) MC < ATC. D) Any of the above may be true.

Q: Which of the following is true for both perfectly competitive and monopolistically competitive firms in the long run? A) P = MC. B) MC = ATC. C) P > MR. D) Profit equals zero.

Q: Which of the following is true for both perfect and monopolistic competition? A) Firms produce a differentiated product. B) Firms face a downward sloping demand curve. C) Firms produce a homogeneous product. D) There is freedom of entry and exit in the long run.

Q: Which of the following is true in long-run equilibrium for a firm in a monopolistic competitive industry? A) The demand curve is tangent to marginal cost curve. B) The demand curve is tangent to average cost curve. C) The marginal cost curve is tangent to average cost curve. D) The demand curve is tangent to marginal revenue curve.

Q: Which of the following is true of the output level produced by a firm in long-run equilibrium in a monopolistically competitive industry? A) It produces at minimum average cost. B) It does not produce at minimum average cost, and average cost is increasing. C) It does not produce at minimum average cost, and average cost is decreasing. D) Either B or C could be true.

Q: What happens to an incumbent firm's demand curve in monopolistic competition as new firms enter? A) It shifts right. B) It shifts left. C) It becomes horizontal. D) New entrants will not affect an incumbent firm's demand curve.

Q: A monopolistically competitive firm in long-run equilibrium: A) will make negative profit. B) will make zero profit. C) will make positive profit. D) Any of the above are possible.

Q: A monopolistically competitive firm in short-run equilibrium: A) will make negative profit (lose money). B) will make zero profit (break-even). C) will make positive profit. D) Any of the above are possible.

Q: Monopolistically competitive firms have monopoly power because they A) face downward sloping demand curves. B) are great in number. C) have freedom of entry. D) are free to advertise.

Q: Which of the following is NOT regarded as a source of inefficiency in monopolistic competition? A) The fact that price exceeds marginal cost B) Excess capacity C) Product diversity D) The fact that long-run average cost is not minimized E) all of the above

Q: The most important factor in determining the long-run profit potential in monopolistic competition is A) free entry and exit. B) the elasticity of the market demand curve. C) the elasticity of the firm's demand curve. D) the reaction of rival firms to a change in price.

Q: A market with few entry barriers and with many firms that sell differentiated products is A) purely competitive. B) a monopoly. C) monopolistically competitive. D) oligopolistic.

Q: Use the following two statements about monopolistic competition to answer this question. I. In the long run, the price of the good will equal the minimum of the average cost. II. In the short run, firms may earn a profit. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

Q: For which of the following market structures is it assumed that there are barriers to entry? A) Perfect competition B) Monopolistic competition C) Monopoly D) all of the above E) B and C only

Q: The demand for on-line brokerage services is: QD = 6,500 - 100P P = 65 - 0.01QD. If the on-line brokerage firms collude, the collusive marginal revenue function is: MR(Q) = 65 - 0.02Q. The brokerage firm specific marginal cost functions are: {Calculate the collusive output level and market price. If the brokerage firms behaved competitively and each firm set its own marginal cost equal to price, what would be the output level and market price?

Q: On the planet Economus, the demand for Kryptonite is:QD = 24.08 - 0.06P P = 401 - 16QD. There are four producers of Kryptonite on the planet who have formed a Kryptonite Cartel. The resulting marginal revenue function for the cartel is:MR(Q) = 401 - 33Q. The marginal costs for producing Kryptonite for the 4 different producers are:MC1 (q1) = q1,MC2 (q2) = 1.5q2,MC3 (q3) = 2q3,MC4 (q4) = 2.5q4.Determine the Cartel profit maximization output levels of each producer. If producer #2 cheats and produces 50% more than their collusive output level, determine their new revenue level.

Q: What happens to the profit-maximizing cartel price and quantity if the marginal cost of production declines? A) The sellers are no longer price takers, so the change in marginal cost has no impact on the cartel outcome. B) If demand is downward sloping, the optimal cartel price should decline and the market quantity should increase. C) The sellers retain the same pricing strategy and capture higher per-unit profits. D) The cartel price increases and market quantity declines.

Q: What happens to the market outcome if cartel members cheat on the collusive agreement? A) Price declines, but firm-level quantities remain the same because the firms act like price takers B) Price and quantity revert to the single-seller monopoly equilibrium outcome C) Other firms raise prices so that the average market price remains unchanged D) Price declines and quantity increases toward the perfectly competitive equilibrium

Q: Cartels can more easily detect cheating by cartel members if the products sold by each member are largely homogeneous. As product quality varies, the observed prices charged by cartel members may be due to differences in the products, or they may be due to cheating. Which of the following goods would more difficult to monitor for potential cheating? A) Aluminum ingots B) Industrial concrete C) Steel beams D) Luxury yachts

Q: Suppose the supply of non-OPEC oil increases due to new petroleum discoveries in other countries. What happens OPEC's share of the world oil market? A) Increases B) Decreases C) Remains the same D) We do not have enough information to answer this question.

Q: Suppose the supply of non-OPEC oil increases due to new petroleum discoveries in other countries. What happens to the price of oil on the world market? A) Increases B) Decreases C) Remains the same D) We do not have enough information to answer this question.

Q: The authors explain that the international copper cartel (CIPEC) has been largely ineffective in raising the price of copper in world markets, and the reason is mainly due to the relatively elastic demand for copper. Suppose the cartel recognized that there are multiple uses for copper, and some of the uses have few substitute products (e.g., copper electrical wire) while others have several close substitutes (e.g., copper water pipes). To increase profits, the cartel could raise the price of copper in the sub-markets with relatively inelastic demand. What else would the cartel have to do in order to make the cartel's action effective? A) The cartel would have to seek permission from the U.S. Department of Justice. B) The cartel would have to get the cooperation of all other copper producers in order to raise the price by some positive amount. C) The cartel would have to find a way to keep the buyers in the low-price market from reselling the copper to buyers in the high-price market. D) none of the above

Q: The authors explain that the international copper cartel (CIPEC) has been largely ineffective in raising the price of copper in world markets, and the reason is mainly due to the relatively elastic demand for copper. Suppose the cartel recognized that there are multiple uses for copper, and some of the uses have few substitute products (e.g., copper electrical wire) while others have several close substitutes (e.g., copper water pipes). If cartel attempted to raise the price of copper in one of these sub-markets, which market should the cartel choose? A) Market with several close substitutes because demand is more elastic. B) Market with several close substitutes because demand is more inelastic. C) Market with few close substitutes because demand is more elastic. D) Market with few close substitutes because demand is more inelastic.

Q: If all producers in a market are cartel members, then the demand curve facing the cartel is A) the market demand curve. B) horizontal. C) identical to the demand curve in the dominant firm model. D) identical to the monopolist's demand curve.

Q: Use the following statements to answer this question: I. Cartels are illegal in the United States. II. Once price and production levels are agreed upon, each member of a cartel has an incentive to "cheat" on the agreement. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false.

Q: This market situation is much like a pure monopoly except that its member firms tend to cheat on agreed upon price and output strategies. What is it? A) Duopoly B) Cartel C) Market sharing monopoly D) Natural monopoly

Q: Which of the following is NOT conducive to the successful operation of a cartel? A) Market demand for the good is relatively inelastic. B) The cartel supplies all of the world's output of the good. C) Cartel members have substantial cost advantages over non-member producers. D) The supply of non-cartel members is very price elastic.

Q: In the town of Battle Springs, the market for fast food is dominated by Mr. Berger. The other companies tend to follow Mr. Berger's lead in setting price and style of burger. The total demand for cheeseburgers in Battle Springs is: P = $1.50 - $0.00015Q. The marginal cost of producing and serving burgers at Mr. Berger is: MCL = 0.25 + 0.0000417Q. The competitive supply curve of burgers by all the other (competitor) firms is: Pf = 0.50 + 0.000285Qf. Compute the price that will be set in the market when Mr. Berger behaves as a dominant firm and maximizes profit for itself. Also, compute the production rate by Mr. Berger and the competitor firms.

Q: The market for an industrial chemical has a single dominant firm and a competitive fringe comprised of many firms that behave as price takers. The dominant firm has recently begun behaving as a price leader, setting price while the competitive fringe follows. The market demand curve and competitive fringe supply curve are given below. Marginal cost for the dominant firm is $0.75 per gallon. QM = 140,000 - 32,000P QF = 60,000 + 8,000P, where QM = market quantity demanded, and QF = the supply of the competitive fringe. Quantities are measured in gallons per week, and price is measured as a price per gallon. a. Determine the price and output that would prevail in the market under the conditions described above. Identify output for the dominant firm as well as the competitive fringe. b. Assume that the market demand curve shifts rightward by 40,000 units. Show that the dominant firm is indeed a price leader. What output (leader and follower) and market price will prevail after the change in demand?

Q: What is the potential drawback if firms follow a price leadership model in an actual market? A) The price leader's behavior may be interpretted as collusion and be subject to antitrust sanctions. B) Excessive price signalling may force all of the firms to adopt price-taking strategies, which reduces overall profits among the firms. C) Disputes about which firm should be the price leader may lead to price wars. D) Signalling efforts increase the firms' fixed costs of production.

Q: Use the following statements to answer this question: I. Under the dominant firm model, the dominant firm effectively acts like a monopolist who is facing the excess market demand that cannot be supplied by the fringe firms. II. Under the dominant firm model, the fringe firms also act like profit maximizing monopolists. A) I and II are true B) I is true and II is false C) I is false and II is true D) I and II are false

Q: Under the kinked demand model, suppose the firm's demand curve shifts rightward but the price at which the kink occurs remains the same. In this case, the firm: A) does not change its output. B) increases output. C) decreases output. D) We do not have enough information to answer this question.

Q: If the fringe supply curve shifts leftward in the dominant firm model, then the resulting market equilibrium price is ________ and the dominant firm's quantity ________. A) lower, decreases B) lower, increases C) higher, decreases D) higher, increases

Q: The key disadvantage of the kinked-demand model is that it: A) explains why firms may collude, but it does not explain how they interact. B) does not explain why prices may be rigid in an oligopoly. C) requires the assumptions of perfect competition. D) only holds under price leadership.

Q: Scenario 12.2:You are studying a market for which the kinked demand curve model applies. The kinked demand curve is as follows:Q = 1200 - 5P for 0 Q < 150Q = 360 - P for 150 QThe marginal cost is given as:MC = QRefer to Scenario 12.2. Suppose that the marginal cost falls such that:MC = Q - 10What is the profit maximizing price?A) 72B) 240C) 210D) all of the aboveE) none of the above

Q: Scenario 12.2:You are studying a market for which the kinked demand curve model applies. The kinked demand curve is as follows:Q = 1200 - 5P for 0 Q < 150Q = 360 - P for 150 QThe marginal cost is given as:MC = QRefer to Scenario 12.2. Suppose that the marginal cost falls such that:MC = Q - 10What is the profit maximizing level of output?A) 43B) 120C) 150D) all of the aboveE) none of the above

Q: Scenario 12.2:You are studying a market for which the kinked demand curve model applies. The kinked demand curve is as follows:Q = 1200 - 5P for 0 Q < 150Q = 360 - P for 150 QThe marginal cost is given as:MC = QRefer to Scenario 12.2. Suppose that the marginal cost increases such that:MC = Q + 10What is the profit maximizing price?A) 72B) 240C) 210D) all of the aboveE) none of the above

Q: The Happy Mountain Brewing Company sells ground organic coffee in one pound containers through several grocery chains in the US. The firm has two divisions: the roasting division buys raw organic coffee beans and then blends, roasts, and grinds the beans, and the merchandising division packages and distributes the ground coffee. a. Please draw a carefully labeled figure that illustrates the optimal transfer pricing policy for the firm if there is no outside market and the firm is a monopoly seller (i.e., there are no other sellers of ground organic coffee). In particular, please show the optimal transfer price that is paid to the roasting division, the optimal retail price charged by the merchandising division, and the optimal amount of coffee sold. b. Suppose poor weather conditions in South American increase the price of raw coffee beans. How does this affect the marginal cost curve for the roasting division? Does this also affect the marginal cost of merchandising (packaging and distribution)? How do the optimal transfer price, retail coffee price, and quantity sold change due to this weather problem?

Q: Melon Computer Company manufacturers its computer components in Singapore and assembles the computers intended for sale in North America in its plant in Arizona. If the U.S. reduces the corporate income tax rate next year, what is the likely outcome for Melon Computer Company? A) Reduce the transfer price for computer components and increase downstream profits B) Reduce the transfer price for computer components and decrease downstream profits C) Increase the transfer price for computer components and increase downstream profits D) Increase the transfer price for computer components and decrease downstream profits

Q: Sporto Auto Company manufacturers each of the aluminum engines used in their cars, and there is no outside market for these engines. Suppose the marginal cost of producing the aluminum engines is constant at all quantities. What happens to the optimal transfer price and the quantity of cars produced if the cost of assembly increases? A) Price and quantity increase B) Price and quantity remain the same C) Price and quantity decrease D) Price remains the same and quantity decreases

Q: Halifax & Smyth (H&S) is a clothier that specializes in expensive men's suits, and the firm makes the suits from wool fabrics that are woven by one of the firm's divisions. This division is the only source for this material, and H&S uses the optimal transfer price to determine the value of the wool fabric. What happens if the marginal cost of assembling the men's suits increases? A) The net marginal revenue (NMR) curve for wool fabric shifts upward, and wool (suit) production increases. B) The net marginal revenue (NMR) curve for wool fabric shifts upward, and wool (suit) production decreases. C) The net marginal revenue (NMR) curve for wool fabric shifts downward, and wool (suit) production increases. D) The net marginal revenue (NMR) curve for wool fabric shifts downward, and wool (suit) production decreases.

Q: Halifax & Smyth (H&S) is a clothier that specializes in expensive men's suits, and the firm makes the suits from wool fabrics that are woven by one of the firm's divisions. This division is not the only source for this material, and H&S could buy or sell wool fabric in the outside competitive market. H&S will buy some of the wool fabric that it needs for suits from the outside market if the: A) market price is less than the optimal transfer price if the outside market did not exist. B) market price is less than the point where the net marginal revenue of weaving wool fabric intersects the marginal cost of wool fabric. C) market price is less than the point where the net marginal revenue of assembling men's suits intersects the marginal cost of assembly. D) Both A and B are correct.

Q: What is the profit maximizing condition for a vertically integrated firm? A) Net marginal revenue equals the sum of the marginal costs of the intermediate inputs. B) Marginal revenue equals the marginal cost of the final output. C) Net marginal revenue equals the marginal cost of each intermediate good. D) The sum of net marginal revenues equals the marginal cost of the final output.

Q: What is net marginal revenue? A) The same as marginal profit. B) The additional revenue the firm earns from an extra unit of an internally produced intermediate input. C) The additional revenue the firm earns from producing one more unit of output. D) The additional revenue the firm earns from selling one more unit of output.

Q: The Acme Oil Company is a vertically integrated firm. It explores for and extracts crude oil. It also refines the crude oil into gasoline and other products, and sells these products to consumers. There are many other firms that extract and sell crude oil so that the market for crude oil is regarded by Acme Oil as competitive. The internal price that Acme Oil uses when the crude oil that it extracts is "sold" to one of its refineries: A) equals the market price for crude oil. B) equals the market price for crude oil less a discount because Acme Oil does not to profit from itself. C) is unrelated to the market price of crude oil. D) is greater than the marginal cost of extracting crude oil.

Q: The Acme Oil Company is a vertically integrated firm. It explores for and extracts crude oil. It also refines the crude oil into gasoline and other products, and sells these products to consumers. The internal price that Acme Oil uses when the crude oil that it extracts is "sold" to one of its refineries is called: A) the shadow price. B) the transfer price. C) the market price. D) the non-market price. E) none of the above

Q: Your family operates Voltaire's Pizza, which ships frozen hand-made pizzas by over-night delivery to homes within 500 miles of your city. You are asked to determine the optimal monthly advertising expenditures for the business. The total monthly cost of pizza production is TC = 4Q + 0.0005Q2 + A where A is the advertising expenditure. The firm's marginal revenue from advertising is constant at MRA = $3, and the advertising elasticity of demand is 0.3. a. What is the firm's marginal cost of production (MC)? What is the firm's full marginal cost of advertising (as a function of Q and A)? b. Suppose you know the profit maximizing level of output is Q = 9,000 pizzas per month. What is the firm's optimal level of advertising expenditure?

Q: The Happy Mountain Brewing Company sells ground organic coffee in one pound containers through several grocery chains in the US. The marginal cost of production is constant at $4 per pound, and the advertising elasticity of demand is 0.2. The firm current spends $4 million per year on advertising and sells 4 million pounds of coffee per year. a. What is the firm's full marginal cost of advertising? b. Suppose the firm switches to a more effective advertising agency, and the advertising elasticity of demand increases to 0.3. What is the firm's new full marginal cost of advertising? c. Suppose the firm was maximizing profits from advertising before the change, and the marginal revenue from an additional dollar of advertising remains the same after the change. Is the firm maximizing the profits generated from the advertising expenditures after the change? If not, how can the firm adjust its advertising expenditures to maximize profits?

Q: Which of the following statements is true? A) If marginal costs are constant, then it is optimal to advertise until the last dollar spent on advertising generates one additional dollar of sales. B) If the demand curve shifts leftward as the advertising expenditure increases, then the advertising elasticity of demand is positive. C) If the advertising elasticity of demand declines and consumer demand becomes more price elastic, then the optimal advertising-to-sales ratio declines. D) If the advertising elasticity of demand is positive, then the demand curve must be upward sloping.

Q: The authors note that advertising can make the consumer demand for a product more elastic (price responsive) by expanding the potential range of consumers. As this change in demand occurs (ceteris paribus), what happens to the optimal advertising-sales ratio? A) Increases B) Decreases C) Remains the same D) We do not have enough information to answer this question

Q: Suppose we advertise up to the point where the last dollar spent on advertising generates an additional dollar of sales revenue (i.e, the marginal revenue of advertising equals one). If the full marginal cost of advertising is greater than one, then we will generate: A) less output than the profit maximizing level. B) more output than the profit maximizing level. C) the profit maximizing level of output. D) We don't have enough information to answer this question.

Q: We may be tempted to determine the optimal level of advertising expenditures at the point where the last dollar spent on advertising generates an additional dollar of sales revenue (i.e, the marginal revenue of advertising equals one). In general, this rule will not allow the firm to maximize profits because it ignores the: A) price elasticity of demand. B) marginal cost of additional sales generated by the advertising. C) advertising-to-sales ratio. D) fixed costs of advertising.

Q: You interview with an athletic footwear manufacturer that has annual advertising expenditures of $32 million and total sales revenue of $100 million, and the firm selects the profit maximizing level of advertising expenditures. If the advertising elasticity of demand is 4, then you know that "Rule of Thumb for Advertising" implies that the demand for the firm's products is: A) inelastic. B) unit elastic. C) elastic. D) zero.

Q: Grocery store chains advertise more than convenience stores because: A) the advertising elasticity of demand is smaller for grocery store chains than for convenience stores. B) convenience stores have more elastic demand for their products than grocery store chains. C) the advertising elasticity of demand for convenience stores is near zero and is much smaller than for grocery store chains. D) all of the above E) none of the above

Q: The price elasticity of demand for nursery products is -10. The advertising elasticity of demand is 0.4. Using the "Rule of Thumb for Advertising," the profit maximizing level of advertising will be set at ________ of sales.A) 0.25 percentB) 0.4 percentC) 4 percentD) 40 percent

Q: Use the following statements to answer this question. I. To maximize profit, a firm will advertise more when the advertising elasticity is larger. II. To maximize profit, a firm will advertise more when the price elasticity of demand is smaller. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false.

Q: Use the following statements to answer this question. I. To maximize profit, a firm will increase its advertising expenditures until the last dollar of advertising generates an additional dollar of revenue. II. The full marginal cost of advertising is the sum of the dollar spent directly on advertising and the marginal production cost that results form the increased sales that advertising brings about. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false.

Q: A 10 percent decrease in advertising results in a 5 percent sales decrease. The advertising elasticity of demand is ________.A) -2.0B) -0.5C) 0.5D) 2E) none of the above

Q: One Guy's Pizza advertising expenditures are $1,200 and sales are $30,000. When the advertising expenditure increases to $1,400, pizza sales increase to $32,000. The arc advertising elasticity of demand is approximately ________.A) 0B) 0.1C) 0.4D) 2.5E) 12.5

Q: Cornucopia Media provides cable television service to several cities in the mid-Atlantic region. The firm has access to two new channels that focus on reality television programming, and the marginal cost of providing both new channels is zero. The first channel is Extreme Scottish Sports (ESS) and appeals to younger viewers, and the second channel is Delaware Entertainment and Tourism (DET) and appeals to older viewers. Based on Cornucopia's market research, younger viewers are willing to pay $5 per month for ESS, and their reservation price for DET is $0.50 per month. The same research indicates that older viewers have a reservation price of $1.00 per month for ESS and $4.00 per month for DET. a. Please show how Cornucopia media can increase sales revenue by bundling the two channels rather than selling access to the channels separately. b. The US Congress has recently considered legislation that would allow cable television subscribers to purchase access to separate channels (without bundling). If the law is enacted, what should we expect to happen to sales revenue in cable television markets?

Q: Your company sells health food products, and you have recently developed a new high-protein drink (HPD) as well as a high-carbohydrate energy bar (HCE). As the product manager for the firm, you are responsible for setting the pricing policy for the new products. You are considering a bundled package that includes both products, and you assume the marginal cost of production is zero for planning purposes. You have identified four basic types of consumers who may buy these new products, and their reservation prices for the two new products are provided in the following table: Type HPD HCE A $0.50 $1.80 B $0.80 $1.10 C $1.00 $0.90 D $1.40 $0.30 a. Suppose you sell the two products separately, and each buyer is expected to purchase one unit of the product per day. Which prices for HPD and HCE maximize daily revenue? What is your daily revenue from selling both products to the four customers under separate pricing? b. If you offer the two products under a pure bundling strategy, what is the revenue maximizing bundle price? What is the daily sales revenue from the pure bundling scheme? c. Please develop a mixed bundling strategy that generates higher daily sales revenue than the pure bundling strategy. What is the daily sales revenue generated under mixed bundling?

Q: Hawkins MicroBrewery can influence demand by advertising. Hawkins spends $5,000 per period on advertising. The advertising elasticity of demand is 2. The price elasticity of demand is -1.5. Hawkins sells each unit for $15. Given that Hawkins is maximizing profit, calculate the number of units sold.

Q: Larry's Carpet Cleaners can influence demand by advertising. Larry charges $50 per carpet, and he cleans 150 carpets per month. The price elasticity of demand is -4, and Larry spends $500 per month on advertising. If Larry is maximizing profits, calculate the advertising elasticity of demand.

Q: Jeremy's Jet Ski Rentals can influence demand by advertising. Currently, Jeremy rents 30 jet skis per period. His advertising budget is $250 per period. The advertising elasticity of demand is 25. The price elasticity of demand is -2. If we know that Jeremy is maximizing profits, calculate the price he must be charging per jet ski rental.

Q: The Sneed Snack Shop sells hamburgers and french fries. Given that there are 4 different types of customers whose willingness-to-pay are presented in the table below, give a pricing scheme that allows customers to buy combination meals and increases revenues for the Shop. The marginal cost of producing a hamburger is $0.60 and the marginal cost of an order of fries is $0.40. Fries Hamburger Type I $1.80 $0.15 Type II $1.00 $1.00 Type III $0.80 $1.20 Type IV $0.10 $1.80

Q: Marge's Beauty Salon sells shampoo and conditioner. Marge has two types of customers. Their willingness-to-pay for shampoo and conditioner are given in the table below. If Marge bundles the shampoo and conditioner, could she increase revenue? Shampoo Conditioner Type I 8 5 Type II 6 8

Q: Trisha's Fashion Boutique sells earrings and pendants. Trisha has two types of customers. Their willingness-to-pay for earrings and pendants are given in the table below. If Trisha bundles the earrings and pendants together, could she increase revenue? Earrings Pendant Type I 100 65 Type II 90 75

Q: Bookstores often offer annual memberships that allow customers to purchase books at a 10% discount. Explain why this may increase profits of the bookstore.

Q: The demand for action figures based on characters from children's movies is extremely high around the time the movie is released. In this peak period, demand for action figures is= 300,000 - 10,000P P = 30 - 0.0002.The resulting marginal revenue curve is MR(Qpk) = 30 - 0.0004Qpk. Some time after the movie release, interest in the action figures wanes. In this lull period, demand for the action figures becomes= 100,000 - 25,000P P = 4 - 0.00008. The resulting lull period marginal revenue curve is MR(QI) = 4 - 0.00016QI. Suppose the marginal costs of producing the action figures are constant at $1.50. What is the optimal pricing strategy in the two different periods?

Q: There are two types of consumers of High Definition Television (HDTV) sets. The first type of consumer is highly eager to purchase the sets. Their demand is= 60,000 - 10P P = 6,000 - 0.1. The resulting marginal revenue function isMR(QI) = 6,000 - 0.2QI. After the first month the HDTV sets are on the market, the first-type demand goes to zero at any price. The second type of consumer is more sensitive to price and will be the same one month after the sets are on the market. Their demand is= 300,000 - 100P P = 3,000 - 0.01. The resulting marginal revenue function isMR(QII) = 3,000 - 0.02QII. Suppose that the marginal cost of producing HDTV sets are constant at $200. What pricing strategies might the manufacturer of HDTV sets consider to maximize profits?

Q: There are two types of consumers of X-box video game systems. The first type of consumer is highly eager to purchase the newest game systems. Their demand is= 60,000 - 100P P = 600 - 0.01. The resulting marginal revenue function isMR(QN) = 600 - 0.02QN. After the first month the X-box systems are on the market, the first-type demand goes to zero at any price. The second type of consumer is more sensitive to price and will be the same one month after the systems are on the market. Their demand is= 300,000 - 1,000P P = 300 - 0.01. The resulting marginal revenue function isMR(QW) = 300 - 0.02 QW. The marginal cost to the manufacturers is constant at $75. If the X-box manufacturer initially sets the system price at $337.50, calculate their producer surplus. Do any second type customers purchase the X-box system at the initial release? Sometime after the initial release, the manufacturer lowers the price to $187.50. If only the second type of customer purchases the system at this later date, calculate producer surplus from these sales. Why does the X-box manufacturer have an incentive to charge a high relative price at initial release and then lower the price considerably sometime later?