- Submitted By: madhuramba
- Date Submitted: 01/14/2010 8:44 PM
- Category: Business
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Chapter 11: Answers to Questions and Problems

1.

a. Since E = EF = EM, ￼.

b. ￼.

c. ￼.

2. x

a. P = $60, Q = 4, and profits = 4($60 – $20) = $160.

b. Charge the maximum price on the demand curve starting at $100 down to $20 for each infinitesimal unit up to Q = 8 units. Profits are 8($100 – $20)(.5) = $320.

c. Charge a fixed fee of $320 and a per-unit charge of $20 per unit to earn total profits of $320.

d. Create a package of 8 units and sell the package for $480. Total profits are $320.

3.

a. Second-degree price discrimination.

b. $8 + 2($4) = $16.

c. Total profits under perfect price discrimination are 5($18 – 8)(.5) = $25, so this strategy would lead to an extra $9.

4.

a. ￼ and ￼.

b. Here, there are two different groups with different (and identifiable) elasticities of demand. In addition, we must be able to prevent resale between the groups.

5.

a. Charge a fixed fee of $160, plus a per-unit charge of $20 per unit.

b. The optimal per-unit price is determined where MR = MC, or 100 - 40Q = 20. Solving yields Q = 2 units and P = $60. The profits at this output and price are $120 - $40 = $80. Thus, you earn $80 more by two-part pricing.

6.

a. The inverse demand function is P = 200 – 4Q. Marginal cost is $120. The optimal number of units in a package is that output where price equals marginal cost. Thus we set 200 – 4Q = 120 and solve to get the optimal number of units in a package, Q = 20 units.

b. The total value to a consumer of the 20 units, which is $3,200 (computed as (.5)(20)($200 - $120) + ($120)(20) = $3,200).

7.

a. $225,000 (since all consumers purchase each product, you earn $75,000 on sales of good X and $150,000 on sales of good Y).

b. $200,000 (since only the highest valuation type purchases each product, you earn $60,000 on sales of good X and $140,000 on sales of good Y).

c. Since all consumers receive at least $110 in value from the bundle, all types buy the bundle. Profits are thus $330,000....

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