Question 1

P = 50 - 1/500Q is the demand curve for tickets.MC = $10 per ticket.What is the optimal price? Calculate the consumer surplus at this price.

Accepted Answer

For the given demand curve,MR = 50 - 1/250Q.Setting MC = MR,we get
1/250Q = 40 or Q = 1,000 units,and so P = $48.So consumer surplus is = (1/2)x (50 - 48)x 1,000 = $1,000.

Question 2

If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20,then the markup would be

Accepted Answer

D

Question 3

If a firm charges a price equal to the marginal cost-the competitive solution-then the gains from trade are

Accepted Answer

C

Question 4

If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20,then the market price would be

Accepted Answer

To find the market price, we need to set the demand equal to the supply.

Demand: P = 85 - 0.25Q
Supply: P = MC = ATC = 20

Setting the demand equal to the supply:
85 - 0.25Q = 20
0.25Q = 65
Q = 260

So, the market quantity is 260. Plugging back into either the demand or supply function, we can find the market price:
P = 85 - 0.25(260)
P = 22.50

Therefore, the best choice is B, as it is closest to $22.50.

Question 5

Using the linear approximation system to estimate the profit maximizing price requires that managers have information on the cost of production

Accepted Answer

The linear approximation system to estimate the profit-maximizing price requires information on the current price, the current quantity sold, and how changes in price affect changes in quantity (price elasticity of demand), which are directly related to understanding the demand side of the equation rather than the cost of production or broader economic indicators.

Question 6

The difference between what a consumer is willing to pay for a product and what she actually pays when buying it is known as

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay (the maximum price they are willing to pay) and the actual price they pay for a product. It represents the benefit that the consumer receives from purchasing the good at a lower price than they are willing to pay. The other options (exchange rate, inflation rate, price discrimination) are not related to this concept.

Question 7

The simple case of pricing with market power assumes that (a)all consumers are charged the same price,(b)the firm sells one product,(c)demand exists in one time period,and (d)competitors do not pursue pricing games.Economists insist on reviewing what happens as each assumption is relaxed one at a time.But it is clear that in the real world all four are relaxed simultaneously.Why does economic analysis insist on such an unrealistic analysis?

Accepted Answer

The answer of The simple case of pricing with market...

Question 8

If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20,then the economic profits would be

Accepted Answer

The correct answer is D.The economic profit is given by the difference between total revenue and total cost. Total revenue is given by the demand curve, which is P = 85 − 0.25Q. Total cost is given by the marginal cost curve, which is MC = ATC = 20.To find the economic profit, we need to find the quantity that maximizes total revenue minus total cost. We can do this by setting the marginal revenue equal to the marginal cost. The marginal revenue is the derivative of the total revenue curve, which is MR = 85 − 0.5Q. The marginal cost is the derivative of the total cost curve, which is MC = ATC = 20.Setting MR = MC, we get:85 − 0.5Q = 200.5Q = 65Q = 130Substituting Q = 130 into the total revenue curve, we get:TR = P * Q = (85 − 0.25Q) * Q = (85 − 0.25 * 130) * 130 = $11,050Substituting Q = 130 into the total cost curve, we get:TC = MC * Q = 20 * 130 = $2,600Therefore, the economic profit is:π = TR − TC = $11,050 − $2,600 = $8,450

Question 9

Tax Fighters,Inc.,develops,markets,and sells software for tax preparation.Tax Fighters,Inc.sells IRS Tax Fighter,a software for completing federal income tax forms and Gopher Basher,a software for completing Minnesota state income tax forms.For simplicity,assume that all of the costs in this industry are the fixed costs of developing the software packages themselves.The marginal cost of producing another disk is approximately zero.
Consider the following information about the demand for tax software.There are an equal number of consumers in each group.Figure 7.1 shows the maximum that each type of consumer is willing to pay for each product.As vice president for pricing,explain your optimal bundling and pricing strategy to maximize Tax Fighter profits from the sale of tax software.Be sure to clearly explain why your strategy is.optimal.

Accepted Answer

The answer of Tax Fighters,Inc.,develops,markets,and sells software for tax preparation.Tax...

Question 10

A typical university football program requires alumni to join one of several booster clubs (each club gets seats in different parts of the stadium)before the person can buy season tickets.What has this got to do with consumer surplus?

Accepted Answer

The answer of A typical university football program requires alumni...

Question 11

Two consumers,1 and 2,of the same product have the following demand curves: Q₁ = 500 - 10P and Q₂ = 500 - 20P.MC for the firm is $10.Calculate the prices when the firm discriminates between the two consumers.Is this a good strategy,or should the firm charge the same price to both of them?

Accepted Answer

The answer of Two consumers,1 and 2,of the same product...

Question 12

Great Nuggets finds that there is a clear gender difference in the demand for their chocolates.Men have very little price sensitivity and tend to buy whatever the sales clerk recommends.Women,on the other hand,tend to ask many questions about product quality and attempt to maximize the quantity available for the price.Great Nuggets would like to implement a two-tier pricing system based on gender.What (nonlegal)problems would it encounter?

Accepted Answer

The answer of Great Nuggets finds that there is a...

Question 13

Wet-n-Wild Indoor Water Park offers family fun year-round in the Northstar state to locals and out-of-state visitors.The demand for day passes to the water park for each market segment is independent of the other market segment.The marginal cost of providing service to each visitor is $5 per day.Suppose the daily demand curves for the two market segments are  .
(a)If Wet-n-Wild Indoor Water Park charges one price to all visitors,what is the profit maximizing price? How many day passes will be sold per day?
(b)If Wet-n-Wild Indoor Water Park charges one price to locals,what is the profit maximizing price for locals? How many day passes will be sold per day to locals?
(c)If Wet-n-Wild Indoor Water Park charges one price to out-of-towners,what is the profit maximizing price for out-of-town guests? How many day passes will be sold per day to out-of-town guests?
(d)Compare the prices from uniform pricing to the prices from price discrimination.

Accepted Answer

The answer of Wet-n-Wild Indoor Water Park offers family fun...

Question 14

If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20,then the output would be

Accepted Answer

To find the output, we need to set MC = P and solve for Q:
MC = P
20 = 85 − 0.25Q
0.25Q = 65
Q = 260
However, we need to check if this output is profitable by comparing it to the ATC:
ATC = MC = 20
Thus, the output is profitable at this level of production. Therefore, the best choice is C, producing 130 units.

Question 15

Using cost plus pricing,what is the price if ATC = $23.50 and the target rate of return is 17 percent?

Accepted Answer

The answer of Using cost plus pricing,what is the price...

Question 16

Using cost plus pricing,what is the price if ATC = $14.50 and the target rate of return is 4 percent?

Accepted Answer

Cost plus pricing approach is given as: Price = ATC + (Mark-up percentage * ATC)
Given, ATC = $14.50 and target rate of return is 4%
Let's assume mark-up percentage as x.
4% = x/(1+x) *100
=> x = 3.85%
=> Mark-up percentage = 0.0385
Hence, Price = $14.50 + (0.0385 * $14.50) = $15.10
Therefore, the correct answer is (A).

Question 17

The simple case of pricing with market power assumes that (a)all consumers are charged the same price,(b)the firm sells one product,and (c)demand exists in one time period.Discuss what happens when each assumption is relaxed.

Accepted Answer

The answer of The simple case of pricing with market...

Question 18

Give examples of block pricing,bundling,price discrimination and two-part tariffs.

Accepted Answer

The answer of Give examples of block pricing,bundling,price discrimination and...

Question 19

A firm with market power in pricing faces a

Accepted Answer

A firm with market power is able to influence the price of its product, which means it faces a downward-sloping demand curve. This is because as the firm increases the price of its product, the quantity demanded by consumers decreases. Therefore, in order to sell more units, the firm must lower its price.

Question 20

A small fitness center that offers only personal training services has the following demand and cost parameters:
Demand: The fitness center has found that it has some discretion in pricing??-that is,it can raise price marginally without drastic reductions in volume.Based on statistical estimates of demand and assuming that external factors stay constant (e.g.,price of competitors' services,income levels,etc.),the following relationship exists between the hourly rate for a personal training session (P)and the number of sessions demanded per day (Q):
P = 140 - Q.
Costs: The fitness center finds that its variable costs (e.g.,labor)increase at a constant rate of $40 with each additional training session provided per day.Fixed costs such as rent are equal to $200 per day.This yields the following total variable cost (TVC)and total fixed cost (TFC)equations:
TVC = 40Q.
TFC = 200.
(a)Find the price and quantity demanded (P and Q)that maximize total profit.
(b)What is the maximum possible profit?

Accepted Answer

The answer of A small fitness center that offers only...

Quiz 7: Pricing With Market Power