GOVERNMENT 7
Question 1
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 2
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 a different price in the adult market
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
84
5.00
30.00
54.00
91
7.00
5.00
35.00
2.00
96
5.00
5.00
40.00
0.00
99
3.00
5.00
45.00
-2.00
100
1.00
5.00
50.00
-4.00
99
-1.00
5.00
55.00
-6.00
96
-3.00
5.00
60.00
-8.00
91
-5.00
5.00
65.00
-10.00
84
-7.00
5.00
70.00
-12.00
75
-9.00
5.00
75.00
-14.00
Question 3
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 a different price in the child’s market
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
Blank 1
Blank 2
52
5.00
20.00
Blank 3
Blank 4
Blank 5
72
10.00
5.00
30.00
5.00
Blank 6
Blank 7
Blank 8
88
8.00
5.00
40.00
3.00
Blank 9
Blank 10
Blank 11
100
6.00
5.00
50.00
1.00
Blank 12
Blank 13
Blank 14
108
4.00
5.00
60.00
-1.00
Blank 15
Blank 16
Blank 17
112
2.00
5.00
70.00
-3.00
Blank 18
Blank 19
Blank 20
112
0.00
5.00
80.00
-5.00
Blank 21
Blank 22
Blank 23
108
-2.00
5.00
90.00
-7.00
Blank 24
Blank 25
Blank 26
100
-4.00
5.00
100.00
-9.00
Blank 27
Blank 28
Blank 29
88
-6.00
5.00
110.00
-11.00
Blank 30
Question 4
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
Blank 1
Blank 2
143
30.00
55.00
Blank 3
Blank 4
Blank 5
168
8.33
5.00
70.00
3.33
Blank 6
Blank 7
Blank 8
187
6.33
5.00
85.00
1.33
Blank 9
Blank 10
Blank 11
200
4.33
5.00
100.00
-0.67
Blank 12
Blank 13
Blank 14
207
2.33
5.00
115.00
-2.67
Blank 15
Blank 16
Blank 17
208
0.33
5.00
130.00
-4.67
Blank 18
Blank 19
Blank 20
203
-1.67
5.00
145.00
-6.67
Blank 21
Blank 22
Blank 23
192
-3.67
5.00
160.00
-8.67
Blank 24
Blank 25
Blank 26
175
-5.67
5.00
175.00
-10.67
Blank 27
Blank 28
Blank 29
152
-7.67
5.00
190.00
-12.67
Blank 30
Question 5
Explain the difference in the profit realized under the two situations (the price in each market or in the two markets combined.)
Question 6
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?
Question 7
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 if everyone likes Showtime more than the History Channel, i.e., preferences are positively correlated?
Question 8
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?
