Suppose there are three types of consumers who attend concerts at your university's performing arts center: students, staff, and faculty. Each of these groups has a different willingness to pay for tickets; within each group, willingness to pay is identical. There is a fixed cost of $1,000 to attend the concert, but there are essentially no variable costs. For each concert: . 140 students are each willing to pay $20. .220 staff members are each willing to pay $35. • 120 faculty members are each willing to pay $50. a. If the performing arts center can charge only one price, what price should it charge? b. What are profits at this price? c. If the performing arts center can price discriminate and charge two prices, one for students and another for faculty/staff, what are its profits? d. If the performing arts center can perfectly price discriminate and charge students, staff, and faculty three separate prices, what are its profits? (A
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- You operate the only fast-food restaurant in town, selling burgers and fries. There are only two customers, one of whom is on the Atkins diet and the other on the Zone diet, whose willingness to pay for each item is displayed in the following table. For simplicity, assume you have zero fixed and marginal costs for each item. a) If x = 1 and you do not bundle the two products, what are your profit-maximizing prices PB and PF? Calculate total surplus under this outcome. b) Now assume only that x + 0. Instead, suppose that you hired an economist who tells you that the profit-maximizing bundle price (for a burger and fries) is $8, while if you sold the items individually (and did not offer a bundle) your profit-maximizing price for fries would be greater than $3. Using this information, what is the range of possible values for x?JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There are 900 potential passengers every week, each of whom is willing to pay up to $400 for a ticket. Since the two airlines provide an essentially identical (bad) service, customers simply prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) Each airline can transport at most 1200 passengers each week. You can safely assume that each airline spends literal peanuts (i.e., zero) serving passengers; however, each passenger displaces air cargo that is worth $160 in profits to the carriers. Suppose that each airline takes a short-run perspective and only wants to maximize each week's profits, and that neither one would consider shutting down the route in the foreseeable future. (a) What is the appropriate economic model to study price competition in this market? (b) If you use Nash equilibrium to make a prediction, what…JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There are 900 potential passengers every week, each of whom is willing to pay up to $400 for a ticket. Since the two airlines provide an essentially identical (bad) service, customers simply prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) Each airline can transport at most 1200 passengers each week. You can safely assume that each airline spends literal peanuts (i.e., zero) serving passengers; however, each passenger displaces air cargo that is worth $160 in profits to the carriers. Suppose that each airline takes a short-run perspective and only wants to maximize each week's profits, and that neither one would consider shutting down the route in the foreseeable future. (a) What is the appropriate economic model to study price competition in this market? (b) If you use Nash equilibrium to make a prediction, what…
- JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There are 900 potential passengers every week, each of whom is willing to pay up to $400 for a ticket. Since the two airlines provide an essentially identical (bad) service, customers simply prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) Each airline can transport at most 1200 passengers each week. You can safely assume that each airline spends literal peanuts (i.e., zero) serving passengers; however, each passenger displaces air cargo that is worth $160 in profits to the carriers. Suppose that each airline takes a short-run perspective and only wants to maximize each week’s profits, and that neither one would consider shutting down the route in the foreseeable future. a) What is the appropriate economic model to study price competition in this market, and why? b) If you use Nash equilibrium to make a…Suppose you manage a large company’s marketing department and are responsible for deciding whether or not to advertise in the Super Bowl. Your team of analysts estimate that for each advertisement, your firm would generate $6 million in additional revenue for the company. It cost $7 million to run a 30-second advertisement. Therefore, your company would expect to lose $1 million in profit for each advertisement. a) Explain why it could still be worthwhile to purchase an advertisement, even though you know in advance that your company would lose $1 million in profit? b)Depict this situation with a game theory payoff matrix. Your company (A) and a major competitor (B) have two potential strategies: to advertise or to not advertise during the Super Bowl. The payoffs in each cell represent the change in firm profits from advertising. Create payoffs in each cell such that the Nash equilibrium is that both firms advertise despite having a higher profit if neither firm advertised.Non-linear pricing in water utilities: You are the manager of water utilities, and you are trying to determine how different water pricing schemes will affect consumption. One option for pricing is called decreasing block pricing, where the marginal price paid decreases with quantity paid. In particular, you are considering a decreasing block schedule where consumers pay $0.20 per gallon for the first 20 gallons consumed, and then $0.10 per gallon for any additional gallons consumed. For this decreasing block pricing scheme, draw the budget constraint for a consumer that has $10 of income, where the composite good is the good on the y-axis. Another option for pricing is called increasing block pricing, where the marginal price paid increases with the quantity paid. In particular, you are considering an increasing block schedule where consumers pay $0.20 per gallon for the first 20 gallons consumed, and then $0.40 per gallon for any additional gallons consumed. For this increasing…
- . When Chinese automakers began exporting cars, rather thanfocusing on developed nations in the West, they shippedautos to emerging markets in countries such as Algeria, Russia,Chile, and South Africa. In these markets, even used vehiclesfrom multinational manufacturers are relatively scarce—andrelatively expensive. The Chinese automakers, who prioritizelow cost rather than design or even safety, applied a penetration-pricing strategy. A woman in Santiago, Chile, who boughta new Chery S21 explained, “The price factor is fairly decisive.I paid $5,500 new and full. Toyota with similar features costsaround $12,000.” Why do you think Chinese automakerschose that pricing strategy? Do you think it was successful?As Chinese regulators pressure these manufacturers to maketheir cars safer, do you think they will be able to keep theirprices low compared with those of the international automakers? Why or why not?261 Assume there are two firms in a Hoteling Linear city. One firm is located at zero and the other at one. Assume the following utility equations: U0=v−p−tx+μ, U1=v−pn−t(1−x). Where U0 is utility from buying the good from the firm located at zero, p is the price for the firm at point zero, t is the travel cost and μ is bonus utility because the firm at point zero makes people a little bit happier. U1 is utility from buying the good from the firm at point one and pn is the price. Part a) Find the indifferent consumerYou work for a marketing firm that has just landed a contract with Run-of-the-Mills to help them promote three of their products: splishy splashers, raskels, and kipples. All of these products have been on the market for some time, but, to entice better sales, Run-of-the-Mills wants to try a new advertisement that will market two of the products that consumers will likely consume together. As a former economics student, you know that complements are typically consumed together while substitutes can take the place of other goods. Run-of-the-Mills provides your marketing firm with the following data: When the price of splishy splashers decreases by 8%, the quantity of raskels sold increases by 6% and the quantity of kipples sold decreases by 8%. Your job is to use the cross-price elasticity between splishy splashers and the other goods to determine which goods your marketing firm should advertise together. Complete the first column of the following table by computing the cross-price…
- The following relations describe monthly demand and supply for a computer support service catering to small businesses.Q D = 3,000 - 10PQ S = -1,000 + 10Pwhere Q is the number of businesses that need services and P is the monthly fee, in dollars.a. At what average monthly fee would demand equal zero?b. At what average monthly fee would supply equal zero?c. Plot the supply and demand curves.d. What is the equilibrium price/output level?e. Suppose demand increases and leads to a new demand curve:You were promoted as the manager of a new Clean-Well Sanitary Store that sell cleaning andsanitation products wholesale. You recently read in an article that there the price of vitamins isexpected to increase by 20 percent. How will this affect your store’s sales of sanitationproducts?2.Suppose the firm uses a two-part tariff to implement first-degree price discrimination. Determine the tariff to be applied to each type of consumer. Determine the profit that the firm will achieve. 3. How could the firm achieve the same result using take-it-or-leave-it offers?4. Now suppose the firm cannot identify each consumer’s utility function. What take-it-or-leave-it offers should the firm propose to ensure incentive compatibility? How much profit does the firm make?