Question 7 Suppose there are two types of individuals: Low demand individuals withdemand Qp(P) = 16 - 4P, and high-demand individuals with Qp(P) = 20- 2P.The firm wants to offer two pricing schedules (Q1, F1) and (Q2, F2), where F1 andF2 are fixed fees, and Q = 4, Q2 = 18 are the amounts of consumption a personwould receives if they paid these fees. The firm wants to choose F and F2 tomaximizes profits (given the choice of Qi and Q2), but the firm cannot distinguishthe two types of consumers. Thus, F1 and F2 must be chosen such that each typeof consumer selects the contract designed for them (low-demand consumer shouldchoose (Q1, F1), and high-demand consumer should choose (Q2, F2).)F1 =, F2 =

An individual's demand for a product or service is known as individual demand (or a household). This…

Question 7 Suppose there are two types of individuals: Low demand individuals with demand Qp(P) = 16- 4P, and high-demand individuals with Qp(P) = 20 2P. The firm wants to offer two pricing schedules (Q1, F1) and (Q2, F2), where F1 and F2 are fixed fees, and Q1 4, Q2 18 are the amounts of consumption a person would receives if they paid these fees. The firm wants to choose F1 and F2 to maximizes profits (given the choice of Q1 and Q2), but the firm cannot distinguish the two types of consumers. Thus, F1 and F2 must be chosen such that each type of consumer selects the contract designed for them (low-demand consumer should choose (Q1, F1), and high-demand consumer should choose (Q2, F2).) %3! F1 = , F2 =

Question 7 Suppose there are two types of individuals: Low demand individuals with demand Qp(P) = 16- 4P, and high-demand individuals with Qp(P) = 20 2P. The firm wants to offer two pricing schedules (Q1, F1) and (Q2, F2), where F1 and F2 are fixed fees, and Q1 4, Q2 18 are the amounts of consumption a person would receives if they paid these fees. The firm wants to choose F1 and F2 to maximizes profits (given the choice of Q1 and Q2), but the firm cannot distinguish the two types of consumers. Thus, F1 and F2 must be chosen such that each type of consumer selects the contract designed for them (low-demand consumer should choose (Q1, F1), and high-demand consumer should choose (Q2, F2).) %3! F1 = , F2 =

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter6: Demand Relationships Among Goods

Section: Chapter Questions

Problem 6.14P

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Question 7 Suppose there are two types of individuals: Low demand individuals with demand Qp(P) = 16 - 4P, and high-demand individuals with Qp(P) = 20 - 2P. The firm wants to offer two pricing schedules (Q1, F1) and (Q2, F2), where F1 and F2 are fixed fees, and Q1 = 4, Q2 = 18 are the amounts of consumption a person would receives if they paid these fees. The firm wants to choose F and F2 to maximizes profits (given the choice of Q1 and Q2), but the firm cannot distinguish the two types of consumers. Thus, F and F2 must be chosen such that each type of consumer selects the contract designed for them (low-demand consumer should choose (Q1, F1), and high-demand consumer should choose (Q2, F2).) %3D F1 = , F2 =
Joe has moved to a small town with only one golf course. His demand curve is P = 120 – 2Q where Q is the number of rounds of golf he plays per year. The manager of the golf course offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds of golf as he wants to at $20 per round. The golf course’s Marginal Cost is $20. - If the golf course wishes to implement a two-part pricing model, what membership fee will maximize revenue for the golf course? Please show your calculations. - How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain. - Would someone who just occasionally plays golf (perhaps 1 or 2 rounds once every 2 months) prefer two-part pricing as given above, or would they prefer to pay a price of $100 per round without any membership fee? Please explain.
GameZone, a video games store, is considering the best way to price two new games – a first-person shooter (FPS) and a racing game. There are four types of consumers that might buy the games with roughly equal numbers of each type, and their willingness to pay (WTP) for each game is detailed in the table below (assume that the willingness-to-pay for a second game of the same type is zero). How should Gamezone price the two games separately to maximise revenue? How should Gamezone price a bundle of both games to maximise revenue? Is there an alternative (involving bundling) that generates more revenue than either single prices or a bundle alone? Under what condition/s is bundling likely to increase profits for a firm? Consumer Type WTP for FPS game WTP for racing game A $120 $70 B $70 $120 C $160 $10 D $10 $160
Q2. Your brother is considering two cell phone providers i.e. UFONE and MOBILINK. UFONE charges Rs.520 (super card) per month for the service regardless of the number of phone calls made. MOBILINK does not have a fixed service fee but instead charges Rs. 1 per minute for calls. Your brother's monthly demand for minutes of calling is given by the equation Q = 150 - 50P, where P is the price of a minute a. With each service provider, what is the cost to your brother of an extra minute on the phone? b. In light of your answer to (a) part, how many minutes would your brother talk on the phone with each service provider? c. How much would he end up paying each provider every month?
A golf cub’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?
ABC Co, a store that sells various types of sports clothing and other sports items, is planning to introduce a new design of Arizona Diamondbacks’ baseball caps. A consultant has estimated the demand curve to be Q = 2,000 - 100P where Q is cap sales and P is price. How many caps could ABC sell at $6 each? How much would the price have to be to sell 1,800 caps? Suppose ABC were to use the caps as a promotion. How many caps could ABC give away free? At what price would no caps be sold? Calculate the point price elasticity of demand at a price of $6.
b) The manager could have charged Joe a single price per round. How much extra profit does theclub earn by using two-part pricing?c) Joe marries Susan, who is also an enthusiastic golfer. Susan wants to join the Northlands Club.The manager believes that Susan’s inverse demand function is ? = 100 − 2?. The manager has apolicy of offering each member of a married couple the same two-part prices, so he offers themboth a new deal. What two-part pricing deal maximizes the club’s profit?d) Will this new pricing have a higher or lower access fee and per-unit fee than in Joe’s originaldeal? How much more would the club make if it charged Susan and Joe separate prices?
Tuan lives in a town with only one movie rental store. Suppose Tuan's demand for movie rentals per month is Q = 16 - 2P. The movie store currently charges $5 per movie but is thinking of adding a flat monthly cardholder fee and dropping the price to $2 per rental. At this new price, what is the largest cardholder fee that Tuan will pay? If the rental store has a constant marginal cost of $2, which strategy is more profitable?
6. You estimate that a typical consumer's inverse demand function is P = 200- 20Q and your cost function is C = 80Q. Determine the optimal two-part pricing strategy. How much will 4 consumers pay?
Suppose that the market for air travel between Chicago and Dallas isserved by just airlines, United and American. An economist has studied thismarket and has estimated that the demand curves for round-trip tickets foreach airline are as follows:QdU = 10,000 - 100PU + 99PA (United’s demand)QdA = 10,000 - 100PA + 99PU (American’s demand) where PU is the pricecharged by United, and PA is the price charged by American.a. Suppose that both American and United charge a price of $300 each for around-trip ticket between Chicago and Dallas. What is the price elasticityof demand for United flights between Chicago and Dallas?b. What is the market-level price elasticity of demand for air travel betweenChicago and Dallas when both airlines charge a price of $300? (Hint:Because United and American are the only two airlines serving theChicago–Dallas market, what is the equation for the total demand for airtravel between Chicago and Dallas, assuming that the airlines charge thesame price?)
Greentech- a high technological pharmaceutical company, has developed a clot-dissolving drug called TPA that will halt a heart attack in progress. TPA saves life, minimizes hospital stays, and reduces damage of the heart itself. It is priced at $ 2,200 per dose. What pricing approach does Greentech appear to be using? Is demand for this drug is likely to be elastic with price? Note: Please answer the question with points and exampleUrgent needed within 30min
The term "BOGO" ("Buy One Get One", also referred to as "Buy One Get One Free") has entered the urban dictionary, and is a sales tactic whereby sellers offer buyers a second unit of the item free if they pay full price for the first unit. A variation of BOGO occurs when stores offer a "Buy One Get One Half Off" sales promotion. Why do you think consumers respond to the "Buy One Get One Half Off" sales promotion and what principle of economics does this behavior reflect?