Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 23PAA
To determine
To know:Whether policy increases social welfare or not.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
KidzPoses Inc., a profit-maximizing business, is the only photography business in town that specializes in portraits of small children. James, who owns and runs KidzPoses, expects to encounter an average of eight customers per day, each with a reservation price (shown in the following table). Assume James has no fixed costs, and his cost of producing each portrait is $12.
Customer Reservation Price ($ per photo)
1 50
2 46
3 42
4 38
5 34
6 30
7…
Macmillan Learning
The Acmeville Metropolitan Bus Service currently charges $0.99 for an all-day ticket, and has an average of 472 riders a day.
The bus company is not earning a profit, but according to their contract with the city, they cannot cut the number of buses on the
road. They must therefore find a way to increase revenues.
The bus company is considering increasing the ticket price to $1.21. The marketing department's studies indicate this price
increase would reduce usage to 208 riders per day.
Calculate the absolute value of the price elasticity of demand for bus tickets using the simple percentage change method. Round
your answer to one decimal place.
price elasticity of demand =
Which of the statements is true?
The Poster Bed Company believes that its industry can best be classified as monopolistically competitive. An analysis of the demand for its canopy bed has resulted in the following estimated demand function for the bed:P = 1760 - 12QThe cost analysis department has estimated the total cost function for the poster bed asTC = (1/3)Q3 - 15Q2 + 5Q + 24,000a. Calculate the level of output that should be produced to maximize short-run profits. b. What price should be charged? c. Compute total profits at this price-output level. d. Compute the point price elasticity of demand at the profit-maximizing level of output. e. What level of fixed costs is the firm experiencing on its bed production? f. What is the impact of a $5,000 increase in the level of fixed costs on the price charged, output produced, and profit generated?
Chapter 14 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
Ch. 14 - Prob. 1CACQCh. 14 - Prob. 2CACQCh. 14 - Prob. 3CACQCh. 14 - Prob. 4CACQCh. 14 - Prob. 5CACQCh. 14 - Prob. 6CACQCh. 14 - Prob. 7CACQCh. 14 - Prob. 8CACQCh. 14 - Prob. 9CACQCh. 14 - Prob. 10CACQ
Ch. 14 - Prob. 11PAACh. 14 - Prob. 12PAACh. 14 - Prob. 13PAACh. 14 - Prob. 14PAACh. 14 - Prob. 15PAACh. 14 - Section 16(a) of the Securities and Exchange Act...Ch. 14 - Prob. 17PAACh. 14 - Prob. 18PAACh. 14 - Prob. 19PAACh. 14 - Prob. 20PAACh. 14 - Prob. 21PAACh. 14 - Prob. 22PAACh. 14 - Prob. 23PAA
Knowledge Booster
Similar questions
- Baker Enterprises operates a midsized company that specializes in the production of a unique type of memory chip. It is currently the only firm in the market, and it earns $10 million per year by charging the monopoly price of $115 per chip. Baker is concerned that a new firm might soon attempt to clone its product. If successful, this would reduce Baker’s profit to $4 million per year. Estimates indicate that, if Baker increases its output to 280,000 units (which would lower its price to $100 per chip), the entrant will stay out of the market and Baker will earn profits of $8 million per year for the indefinite future. 1. What must Baker do to credibly deter entry by limit pricing? 2. Does it make sense for Baker to limit price if the interest rate is 10 percent?arrow_forwardYour local county's electricity is supplied by two power plants which, due to anti-collusion laws, are forbidden to communicate with each other when deciding what quantity of electricity to generate and how much to charge for it. The price of electricity in the market is given by 340 - 0.03q1 - 0.015q2, where q1 is the amount of electricity sold by generator 1 and q2 is that sold by generator 2. The cost function for generator 1 is 550 + 0.06q1 + 0.0002(q1)^2 The cost function for generator 2 is 600 + 0.04q2 + 0.0004(q2)^2 a) If the two power generators act as a Cournot duopoly, how much electricity will be produced by generator 1? b) How much power will be produced by generator 2? c) What would the market price be?arrow_forwardHP has developed a new, high-end, high-resolution printer, which can print 40 pages per minute. Its market research identified two target segments of customers: 3,500 large businesses and 6,500 university labs. A large business has a valuation of $900 for the new printer, whereas a university lab has a valuation of $630. HP’s variable cost for the printer is $450/unit; all fixed costs are sunk. Assume that each customer needs at most one new HP printer (i.e., no customer will buy multiple units). (a) Suppose that HP cannot price discriminate the two segments of customers, i.e., it can charge only one price for its printer. What is HP’s optimal price for the new printer? What is its maximum profit? (b) Suppose that HP can install an extra chip in the printer to slow down printing to 15 pages per minute. Such a chip costs HP $20 to make and install for each printer. The slower version of the printer is valued at $700 by a large business customer and $600 by a university lab. With…arrow_forward
- Suppose Bedox is a patent drug for man’s beauty. Her manufacturer faces a market demand for Bedox of Q = 1,000 – 0.2P. She has a cost function of C = 300,000 – 1,000Q + 10Q^2.Suppose the government considers this “unfair to consumers” by allowing Bedox to charge such a high price. As such, the government has decided to impose a lump-sum tax of $200,000 on Bedox. Explain whether this policy can help alleviate the “unfairness to consumers”.arrow_forwardPresently, APlus Transport and Big Movers are the only suppliers of services that haul heavy construction equipment between jobs within the Midwest. No other suppliers have the equipment necessary to perform the service. The market inverse demand for these hauling services is given below. P-4,030-40 where P is price per trip and Q is total number of trips per year. For simplicity, also assume that neither firm has fixed costs. From company records, you are given the following variable cost function for each firm: TVC,=300, TVC, - 800 a. Assume these two competitors operate as a two-firm Cournot duopoly. Find the reaction functions for each firm. b. Calculate the Cournot market equilibrium price-output solutions for each firm including their respective profits. c. Suppose Big Movers shuts down operations so that APlus now has a monopoly in this market. What is the price, quantity, and profits for APlus after this change? d. Summarize the results of your findings over the two possible…arrow_forwardHotel Del Luna has 10 rooms with a marginal cost of $20. During the high season, the demand equation is QH = 700- 2PH, where QH is the number of rooms and PH is the room %3D rate per night during the high season. During the low season, the demand equation is Q1, = 420 PL, where QL, is the number of rooms and P, is the room rate per night during the low season. What is the profit-maximizing room rates during the high season (PH)? O PH= $700. %3D O PH = $420. PH = $345. %3D PH = $300. None of the above.arrow_forward
- Olympus has integrated many components into its SLR camera. Recently, Olympus has introduced a smartphone app, Olympus Image Share (OI.Share) to pair with its camera. It says: "Paired with a compatible Olympus camera, the Olympus Image Share (OI.Share) smartphone app makes photography more enjoyable than ever. With this app, you can release the shutter remotely, then easily import photos from the camera to your smartphone and share your most inspiring moments with friends and family". a. How might this news be an example of non-price competition for an oligopolistic firm? Discuss.arrow_forwardThe Hewl-Pact Company produces a popular printer than prints over 100 pages per minute. It recently announced that it was introducing a lower priced model of the printer that can print 30 pages per minute. While not revealed to the public, it turns out that it costs the company more to produce the lower priced product. The two models are identical except for a $20 internal part for the low-priced model that slows the printer from 100 to 30 pages per minute. Provide an economic explanation for why the company decided to produce a new lower priced, but more costly, model of the printer.arrow_forwardThe Friendly Greetings greeting card company outsources printing to a nearby printing shop, which charges a $1200 fixed charge to start producing a design of card, then $0.30 for each card produced. The printing shop turns around production orders quite quickly, so lead time can be considered negligible. Demand for birthday cards of a certain classic design has long been at a constant and steady rate of 25,000 cards per year. Friendly Greetings stores cards in its own warehouse. The company estimates holding costs to be 5 cents per card per year, including variable warehousing costs and the opportunity cost of capital. The company’s current ordering policy is not necessarily optimal. They place an order for 15,000 cards when their stock of cards approaches zero. How much on average do they spend annually on fixed production charges for the birthday card design?arrow_forward
- Suppose ANT LLP produces computer chips, with the market elasticity of demand for the product being equal to 1.3. The marginal cost of production is MC 190 and the average total cost is ATC= 215. Assume ANT LLP is the only company in the market. What is the optimal per-unit price? $ Suppose ANT LLP has a competitor, KKT LLP. Both firms choose quantities to produce simultaneously and independently. Determine the optimal per unit price for ANT LLP: $ Suppose now there are 12 firms in the market. Still, firms choose quantities to produce simultaneously and independently. Determine the optimal per unit price for ANT LLP: $arrow_forwardRound off your final answer to whole #. A company produces and sells a consumer product and is able to control the demand by varying the selling price. The approximate relationship between price and demand is p=45 + 2700/D - 5000/D2 for D > 1 The company is seeking to maximize its profit. The fixed cost is $1,000 and the variable cost is $38 per unit. What is the number of units that should be produced and sold each month to maximize profit?arrow_forwardAir Canada announces a 15% off sale on its flights, so fans can watch Toronto Raptors play against the Golden State Warriors in the NBA Finals. What effect will this sale have on Air Canada's flights to destinations other than Canada?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning