- Submitted By: thehunkyman
- Date Submitted: 12/11/2014 11:26 AM
- Category: Business
- Words: 1699
- Page: 7

Chapter 11: Answers to Questions and Problems

1.

a. Since E = EF = EM, .

b. .

c. .

2.

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. You will make three sales and earn $8 in profit on the first sale ($16 - $8) and $8 in profit on the last two sales (2($12 - $8)) for a total profit of $16.

c. Total profits under perfect price discrimination are $8 + $6 + $4 + $2 + $0 = $20, so this strategy would lead to an extra $4. You could instead calculate the area of the triangle under demand and above the MC/AC curve to get 5(0.5(18-8)) = $25. This formula would be correct if you could sell fractions of a unit, and generally will be the same as the discrete calculation for larger sales volumes.

4.

a. .

.

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 per-unit fee equal of $10, which equals marginal cost. At this price, you will sell 6 units. The fixed fee then should be (250 – 10)(6)(0.5) = $720.

b. The optimal per-unit price is determined where MR = MC, or 250 - 80Q = 10. Solving yields Q = 3 units and P = $130. The profits at this output and price are ($130 - $10)(3) = $360. Thus, you earn $360 more by two-part pricing.

6.

a. The inverse demand function is P = 160 – 2Q. Marginal cost is $100. The optimal number of units in a package is that output where price equals marginal cost. Thus we set 160 – 2Q = 100 and solve to get the optimal number of units in a package, Q = 30 units.

b. The...