ECO 550 Discussion Week 12 Managerial Economics Problem Set 4 work all of PROBLEM OUT.
Question 3
Suppose the number of firms you compete with has recently increased. You estimated that as a result of the increased competition, the demand elasticity has increased from – 2 to – 3, i.e., you face more elastic demand. You are currently charging $10 for your product. If demand elasticity is -3, you should charge [x].
Question 6
An amusement park, whose customer set is made up of two markets, adults and children, has developed demand schedules as follows:
The marginal operating cost of each unit of quantity is $5. Because marginal cost is a constant, so is average variable cost. Ignore fixed costs. The owners of the amusement part want to maximize profits.
Price ($)
Quantity
Adults
Children
5
15
20
6
14
18
7
13
16
8
12
14
9
11
12
10
10
10
11
9
8
12
8
6
13
7
4
14
6
2
Calculate the price, quantity, and profit if: The amusement park charges the same price in the two markets combined
Please express your answers for Price and Profit in whole dollars (i.e.10.00)
Please use whole numbers for Quanitity (i.e. 10, 27, 4)
Price
Quantity
Total
Revenue
Marginal
Revenue
Marginal
Cost
Total
Cost
MR-MC
Profit
14
8
112
5
40
72
11
143
10.33
5
55
5.33
88
12
168
8.33
5
70
3.33
98
11
17
187
6.33
5
85
1.33
20
200
4.33
5
100
-0.67
100
9
207
2.33
5
115
-2.67
92
8
26
208
0.33
5
130
-4.67
29
203
-1.67
5
145
-6.67
58
6
192
-3.67
5
160
-8.67
5
35
175
-7.67
5
190
-12.67
-38
Question 7
Explain the difference in the profit realized under the two situations (the price in each market or in the two markets combined.)
Make sure you include the profit with and without price discrimination in your answer.
Question 8
Time Warner could offer the History Channel (H) and Showtime (S) individually or as a bundle of both.
Suppose the reservation prices of customers 1 and 2 (the highest prices they are willing to pay) are presented in the boxes below.
The cost to Time Warner is $1 per customer for licensing fees.
Preferences
Showtime
History Chanel
Customer 1
9
2
Customer 2
3
8
Should Time Warner bundle or sell separately? Your answer needs to include the unbundled and bundled profits.
Question 9
Suppose Time Warner could sell Showtime for $9, and History channel for $8, while making Showtime-History bundle available for $13. Should it use mixed bundling. i.e., sells products both separately and as a bundle?
Your answer must include the profit with mixed bundling.
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