Microeconomics for Managers
Problem Set 11
Sherif Khalifa
Question 1
The manager of a firm purchase inputs at a price of $1.75. The elasticity of demand is
given by -5. What price should the manager charge to maximize profits?
Question 2
Suppose 8 firms compete in a Cournot industry. The market elasticity of demand for
the product is -6, and each firm’s marginal cost of production is $75. What is the profit
maximizing equilibrium price?
1
Question 3
You are the manager of a monopoly that sells a product to two groups of consumers.
Group 1’s elasticity of demand is -3, while group 2’s is -7. Your marginal cost of producing
the product is $15. Determine your optimal markups and prices under third degree price
discrimination?
Question 4
Suppose the demand function is given by
Q = 100 − 2P
If this demand function is based on the individual demands of 10 customers. The marginal
cost to the firm is given by $5. What is the optimal two part pricing strategy?
2
Question 5
Suppose a consumer’s inverse demand function for soda produced by a firm with market
power is given by
P = 20 − 2Q
The marginal cost is zero. What price should the firm charge for a package containing 10
cans of soda?
Question 6
Suppose three purchasers of a new car have the following valuations for different options
Consumer
AC
Power Brakes
1
$1100
$500
2
$800
$300
If the manager knows the identity of each customer, what is the optimal pricing strategy?
If the manager does not know the identity of the buyers, what is the optimal pricing
strategy?
3
Question 7
You are the manager of a monopoly. A typical consumer’s inverse demand function for
your firm’s product is given by
P = 100 − 20Q
Your cost function is
C (Q) = 20Q
Determine the optimal two part pricing strategy?
How much additional profits do you earn using a two part pricing strategy compared with
charging this consumer a per unit price?
4...