please respond to the following eco 550 assignment week 5 managerial economics problem set 1
ECO 550 Assignment Week 5 Managerial Economics Problem Set
Problem 1: Using the Marginal Approach (40 points)
Suppose your company runs the shuttle business for a hotel to and from the local airport. The costs for different customer loads are:
1 customer: $30
2 customers: $32
3 customers: $35
4 customers: $38
5 customers: $42
6 customers: $48
7 customers: $57
8 customers: $68.
- What are your marginal costs for each customer load level?
- If you are compensated $10 per ride, what customer load would you choose?
Problem 2: Elasticity and Pricing (40 points)
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 $10 for your product. What is the price that you should charge if demand elasticity is -3?
Problem 3: Price Discrimination (40 points)
An amusement park, whose customer set is made up of two markets, adults and children, has developed demand schedules as follows:
|
Price ($) |
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 |
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.
Calculate the price, quantity, and profit if:
- The amusement park charges a different price in each market.
- The amusement park charges the same price in the two markets combined.
- Explain the difference in the profit realized under the two situations.
Problem 4: Bundling (40 points)
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 Channel |
|
|
Customer 1 |
9 |
2 |
|
Customer 2 |
3 |
8 |
- Should Time Warner bundle or sell separately?
- Should Time Warner bundle if everyone likes Showtime more than the History channel (i.e., preferences are positively correlated).
- Suppose Time Warner could sell Showtime for $9, and History channel for $8, while making a 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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