result of the increased competition, the demand elasticity

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result of the increased competition, the demand elasticity

Running head: GOVERNMENT 1

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?

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