Running head: GOVERNMENT 1 GOVERNMENT 7 Question 1 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. If demand elasticity is -3, you should charge [x]. Question 2 An amusement park, whose customer set is made up of two markets, adults and children, has developed demand schedules as follows: The marginal operating cost of each unit of quantity is $5. Because marginal cost is a constant, so is average variable cost. Ignore fixed costs. The owners of the amusement part want to maximize profits. Price ($) 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 Please express your answers for Price and Profit in whole dollars (i.e.10.00) Please use whole numbers for Quanitity (i.e. 10, 27, 4) Price Quantity Total Revenue Marginal Revenue Marginal Cost Total Cost MR-MC Profit 84 5.00 30.00 54.00 91 7.00 5.00 35.00 2.00 96 5.00 5.00 40.00 0.00 99 3.00 5.00 45.00 -2.00 100 1.00 5.00 50.00 -4.00 99 -1.00 5.00 55.00 -6.00 96 -3.00 5.00 60.00 -8.00 91 -5.00 5.00 65.00 -10.00 84 -7.00 5.00 70.00 -12.00 75 -9.00 5.00 75.00 -14.00 Question 3 An amusement park, whose customer set is made up of two markets, adults and children, has developed demand schedules as follows: The marginal operating cost of each unit of quantity is $5. Because marginal cost is a constant, so is average variable cost. Ignore fixed costs. The owners of the amusement part want to maximize profits. Price ($) 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 Please express your answers for Price and Profit in whole dollars (i.e.10.00) Please use whole numbers for Quanitity (i.e. 10, 27, 4) Price Quantity Total Revenue Marginal Revenue Marginal Cost Total Cost MR-MC Profit Blank 1 Blank 2 52 5.00 20.00 Blank 3 Blank 4 Blank 5 72 10.00 5.00 30.00 5.00 Blank 6 Blank 7 Blank 8 88 8.00 5.00 40.00 3.00 Blank 9 Blank 10 Blank 11 100 6.00 5.00 50.00 1.00 Blank 12 Blank 13 Blank 14 108 4.00 5.00 60.00 -1.00 Blank 15 Blank 1
6 Blank 17 112 2.00 5.00 70.00 -3.00 Blank 18 Blank 19 Blank 20 112 0.00 5.00 80.00 -5.00 Blank 21 Blank 22 Blank 23 108 -2.00 5.00 90.00 -7.00 Blank 24 Blank 25 Blank 26 100 -4.00 5.00 100.00 -9.00 Blank 27 Blank 28 Blank 29 88 -6.00 5.00 110.00 -11.00 Blank 30 Question 4 The marginal operating cost of each unit of quantity is $5. Because marginal cost is a constant, so is average variable cost. Ignore fixed costs. The owners of the amusement part want to maximize profits. Price ($) 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 Please express your answers for Price and Profit in whole dollars (i.e.10.00) Please use whole numbers for Quanitity (i.e. 10, 27, 4) Price Quantity Total Revenue Marginal Revenue Marginal Cost Total Cost MR-MC Profit Blank 1 Blank 2 143 30.00 55.00 Blank 3 Blank 4 Blank 5 168 8.33 5.00 70.00 3.33 Blank 6 Blank 7 Blank 8 187 6.33 5.00 85.00 1.33 Blank 9 Blank 10 Blank 11 200 4.33 5.00 100.00 -0.67 Blank 12 Blank 13 Blank 14 207 2.33 5.00 115.00 -2.67 Blank 15 Blank 16 Blank 17 208 0.33 5.00 130.00 -4.67 Blank 18 Blank 19 Blank 20 203 -1.67 5.00 145.00 -6.67 Blank 21 Blank 22 Blank 23 192 -3.67 5.00 160.00 -8.67 Blank 24 Blank 25 Blank 26 175 -5.67 5.00 175.00 -10.67 Blank 27 Blank 28 Blank 29 152 -7.67 5.00 190.00 -12.67 Blank 30 Question 5 Explain the difference in the profit realized under the two situations (the price in each market or in the two markets combined.) Question 6 Time Warner could offer the story 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 story Chanel Customer 1 9 2 Customer 2 3 8 Question 7 Time Warner could offer the story 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 story Chanel Customer 1 9 2 Customer 2 3 8 Question 8