PC Connection and CDW are two online retailers that compete in an Internet market for digital cameras. While the products they sell are similar, the firms attempt to differentiate themselves through their service policies. Over the last couple of months, PC Connection has matched CDW's price cuts, but has not matched its price increases. Suppose that when PC Connection matches CDW's price changes, the inverse demand curve for CDW's cameras is given by P= 2,000 - 3Q. When it does not match price changes, CDW's inverse demand curve is P=1,850 -0.5Q. Based on this information, determine CDW's inverse demand function over the last couple of months. P= 2000|- 6 Qif Qs 60 1Qif Qz 60 1850 Over what range will changes in marginal cost have no effect on CDW's profit-maximizing level of output? 200 to $ 1820 %24

PC Connection and CDW are two online retailers that compete in an Internet market for digital cameras. While the products they sell are similar, the firms attempt to differentiate themselves through their service policies. Over the last couple of months, PC Connection has matched CDW's price cuts, but has not matched its price increases. Suppose that when PC Connection matches CDW's price changes, the inverse demand curve for CDW's cameras is given by P= 2,000 - 3Q. When it does not match price changes, CDW's inverse demand curve is P=1,850 -0.5Q. Based on this information, determine CDW's inverse demand function over the last couple of months. P= 2000|- 6 Qif Qs 60 1Qif Qz 60 1850 Over what range will changes in marginal cost have no effect on CDW's profit-maximizing level of output? 200 to $ 1820 %24

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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PC Connection and CDW are two online retailers that compete in an Internet market for digital cameras. While the products they sell are similar, the firms attempt to differentiate themselves through their service policies. Over the last couple of months, PC Connection has matched CDW’s price cuts but has not matched its price increases. Suppose that when PC Connection matches CDW’s price changes, the inverse demand curve for CDW’s cameras is given by P = 1,500 − 3Q. When it does not match price changes, CDW’s inverse demand curve is P = 900 − 0.50Q. Based on this information, determine CDW’s inverse demand and marginal revenue functions over the last couple of months. Over what range will changes in marginal cost have no effect on CDW’s profit-maximizing level of output?
Suppose Mattel, the producer of Barbie dolls and accessories (sold separately), has two types of consumers who purchase its dolls: low-value consumers and high-value consumers. Each of the low-value consumers tends to purchase one doll and one accessory, with a total willingness to pay of $60. Each of the high-value consumers buys one doll and two accessories and is willing to pay $114 in total. Mattel is currently considering two pricing strategies: Strategy 1: Sell each doll for $30 and each accessory for $301 Strategy 2: Sell each doll for $6 and each accessory for $54 In the following table, indicate the revenue for a low-value and a high-value customer under strategy 1 and strategy 2. Then, assuming each strategy is applied to one low-value and one high-value customer, indicate the total revenue for each strategy. Strategy 1 $30 doll + $30 accessory Strategy 2 $6 doll + $54 accessory Revenue from Low-Value Customers $60 Value, 1 Accessory ($) $ $ The strategy that generates the…
A golf club’s owner has commissioned a market study that estimates the average customer’s monthly demand curve for playing 18-hole golf game to be Q=50 – 0.5P, where Q stands for the number of 18-hole golf game, and P is the green fee. The marginal cost is given by MC=20. (1) Under two-part pricing strategy, what is the optimal amount of green fee to charge for one round of 18-hole golf game? (2) Under two-part pricing strategy, what is the optimal amount of membership due? (3) Under two-part pricing strategy, what is the size of the profit obtained from the average customer?
Suppose that managers at Honda are deciding how to price the new Honda Accord. The managers estimate that their total costs increase by $20,000 for each car they produce. They also estimate the demand curve they face; it is described by the equation: Q = -0.4 P + 16,000, where Q represents the quantity of Honda Accords they will sell and P represents the price they charge in US dollars. We can re-write that demand curve as: P = 40,000 - 2.5 Q. Take every possibly quantity that the managers might choose between and 7,000 in units of 100. For each possible quantity, calculate the associated price the managers would need to charge, the revenue they would earn, and the total costs. You can then calculate profits for each level of quantity. Highlight the cell that contains the highest value of profit. Finally, you can also approximate marginal revenue here as the change in total revenue after the next 100 cars are produced. At what quantity does marginal revenue roughly equal marginal cost?…
Suppose that managers at Honda are deciding how to price the new Honda Accord. The managers estimate that their total costs increase by $20,000 for each car they produce. They also estimate the demand curve they face; it is described by the equation: Q = -0.4 P + 16,000, where Q represents the quantity of Honda Accords they will sell and P represents the price they charge in US dollars. We can re-write that demand curve as: P = 40,000 - 2.5 Q. Take every possibly quantity that the managers might choose between 0 and 7,000 in units of 100. For each possible quantity, calculate the associated price the managers would need to charge, the revenue they would earn, and the total costs. You can then calculate profits for each level of quantity. Highlight the cell that contains the highest value of profit.
AT&T. It is early in the days of cellular (or mobile) telephony, and you are the price manager for AT&T's cell phone plan. It has been determined that there are two market segments: low-value consumers and high-value consumers. For simplicity, assume that all consumers within a segment are identical. A consumer in the low-value segment has monthly demand (measured in number of minutes) of Q, (p) = 80 - p, and a consumer in the high-value segment has monthly demand of QH (P) = 100 -p, where p is in cents per minute. a. Assume AT&T charges a flat price per minute with no membership fee. Derive the expression for consumer surplus for a low-value consumer and for a high-value consumer as a function of the price, p. Low-value consumer surplus, CS, (p): = High-value consumer surplus, CS, (p) = Show Transcribed Text Assume AT&T's marginal cost is a constant 10 cents per minute. You have decided to use a two-part tariff and must choose the monthly fixed fee f and the per-minute charge p. There…
The inverse demand curve facing a resort hotel is during the low season and PL = 100-Q₁ PH = 350 – QH during the high season. The resort's marginal cost is $50 per night in cleaning costs for the room and general maintenance and administration. The resort only has 75 rooms. What is the resort's profit- maximizing peak-load pricing strategy? Illustrate the solution in a diagram. 1.) Using the point drawing tool, indicate the profit-maximizing price during the low season. Label this point 'e' 2.) Using the point drawing tool, indicate the profit-maximizing price during the high season. Label this point 'eH Carefully follow the instructions above, and only draw the required objects. p. $ per night 69 400- 350- 300- 250- 200- a 150- 100- 50- 0- 0 MR D MRH 50 100 150 200 250 300 Q, Rooms per night MG DH 350 400 Q ON
You are a pricing analyst for QuantCrunch Corporation, a company that sells a statistical software package. To date, you only have one client. A recent internal study reveals that this client’s inverse demand for your software is P=1500-5Q and that it would cost you $1,000 per unit to install and maintain software at this client’s site. What is the profit that results from two-part pricing? (Hint: set the per-unit price for each unit of the software installed and maintained equal to marginal cost; and charge a fixed “licensing fee” that extracts all consumer surplus from the client)
The inverse demand curve facing a resort hotel is during the low season and PL = 100 - QL PH = 400 - QH during the high season. The resort's marginal cost is $50 per night in cleaning costs for the room and general maintenance and administration. The resort only has 100 rooms. What is the resort's profit-maximizing peak-load pricing strategy? Illustrate the solution in a diagram. 1.) Using the point drawing tool, indicate the profit-maximizing price during the low season. Label this point 'e.' 2.) Using the point drawing tool, indicate the profit-maximizing price during the high season. Label this point 'e.' Carefully follow the instructions above, and only draw the required objects. C p, $ per night 400- 350+ 300- 250- 200- 150- 100- 50- 0+ 0 MR D 50 ☆ H MR' 100 150 200 250 300 Q, Rooms per night MC DH 350 400 LY
Suppose you are trying to determine the pricing for popcorn at a movie theater. There are just two types of customers (for simplicity assume just two total customers). One customer has a low demand for popcorn and will pay $1.00 for 16 oz of popcorn and nothing for a second 16oz. The high demand customer will pay $1.25 for the first 16oz and $0.50 for the second 16oz. If you charge one price for every 16oz a customer buys, what would you charge?
Suppose Mattel, the producer of Barbie dolls and accessories (sold separately), has two types of consumers who purchase its dolls: low-value consumers and high-value consumers. Each of the low-value consumers tends to purchase one doll and one accessory, with a total willingness to pay of $48. Each of the high-value consumers buys one doll and two accessories and is willing to pay $93 in total. Mattel is currently considering two pricing strategies: • Strategy 1: Sell each doll for $24 and each accessory for $24 • Strategy 2: Sell each doll for $3 and each accessory for $45 In the following table, indicate the revenue for a low-value and a high-value customer under strategy 1 and strategy 2. Then, assuming each strategy is applied to one low-value and one high-value customer, indicate the total revenue for each strategy. Strategy 1 $24 doll + $24 accessory Strategy 2 $3 doll + $45 accessory Revenue from Low-Value Customers $48 Value, 1 Accessory ($) $ $ The strategy that generates the…
Suppose Mattel, the producer of Barbie dolls and accessories (sold separately), has two types of consumers who purchase its dolls: low-value consumers and high-value consumers. Each of the low-value consumers tends to purchase one doll and one accessory, with a total willingness to pay of $44. Each of the high-value consumers buys one doll and two accessories and is willing to pay $82 in total. Mattel is currently considering two pricing strategies: • Strategy 1: Sell each doll for $22 and each accessory for $22 • Strategy 2: Sell each doll for $6 and each accessory for $38 In the following table, indicate the revenue for a low-value and a high-value customer under strategy 1 and strategy 2. Then, assuming each strategy is applied to one low-value and one high-value customer, indicate the total revenue for each strategy. Revenue from Low-Value Customers Revenue from High-Value Customers Total Revenue from Strategy $44 Value, 1 Accessory $82 Value, 2…