Suppose that you are a manager for Adobe Systems, the creator of Photoshop and other software products. Adobe rents most of its products to its customers. Suppose that it has two classes of customers for its Photoshop program: students and businesspeople. Say that the demand function for students is: And, the demand function for businesspeople is: Q 500,000 programs-1,000P QB-800,000 programs - 1,000P In both demand functions, P is the annual rental price of the program. Because Photoshop is delivered over the Internet, the marginal cost of another program is $0. Suppose that Adobe has fixed costs of $5,000,000. Suppose price discrimination is possible. The rental price that you would recommend Adobe to charge students would be 5. and the quantity of products that it should rent would be programs. The rental price that you would recommend Adobe to charge businesspeople would be $☐ and the quantity of products that it should rent would be programs. Adobe's economic profit or economic loss would be $

Suppose that you are a manager for Adobe Systems, the creator of Photoshop and other software products. Adobe rents most of its products to its customers. Suppose that it has two classes of customers for its Photoshop program: students and businesspeople. Say that the demand function for students is: And, the demand function for businesspeople is: Q 500,000 programs-1,000P QB-800,000 programs - 1,000P In both demand functions, P is the annual rental price of the program. Because Photoshop is delivered over the Internet, the marginal cost of another program is $0. Suppose that Adobe has fixed costs of $5,000,000. Suppose price discrimination is possible. The rental price that you would recommend Adobe to charge students would be 5. and the quantity of products that it should rent would be programs. The rental price that you would recommend Adobe to charge businesspeople would be $☐ and the quantity of products that it should rent would be programs. Adobe's economic profit or economic loss would be $

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter19: Elasticity

Section: Chapter Questions

Problem 5WNG

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What is the difference between Linear and Non-Linear Demand Function?
Suppose you are the manager of a restaurant that serves an average of 400 meals per day at an average price per meal of $20. On the basis of a survey, you have determined that reducing the price of an average meal to $18 would increase the quantity demanded to 450 per day. Compute the price elasticity of demand between these two points. Would you expect total revenues to rise or fall? Explain. Suppose you have reduced the average price of a meal to $18 and are considering a further reduction to $16. Another survey shows that the quantity demanded of meals will increase from 450 to 500 per day. Compute the price elasticity of demand between these two points. Would you expect total revenue to rise or fall as a result of this second price reduction? Explain. Compute total revenue at the three meal prices. Do these totals confirm your answers in (b) and (d) above?