Question 1

Suppose your company runs a shuttle business at a hotel to and from the local airport. The cost for customer load are:

1. customer: $30.00 2 customers $32.00 3 customers $35.00 4 customers $ 38.00 5 customers $42.00 6 customers $48.00 7 customers $57.00

8 customers $68.00

What are your marginal cost for each customer load level?

Q TC MC Total Revenue Profit

1 30 ? 10 -20

2 32 ? 20 -12

3 35 ? 30 -5

4 38 ? 40 2

5 42 ? 50 8

6 . 48 ? 60 12

.7 57 ? 70 13 .

8 68 ? 80. 12

Question 2

Suppose your company runs a shuttle business of 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

I you are compensated $10. per ride, what customer load would you choose?

Question 3

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 $10.00 for your product. If demand elasticity is -3, you should charge (X).

Question 4

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 $5.00, because marginal cost is a constant, so is average variable cost. Ignore fixed cost. The owner of the amusement park want to maximize profits.

Quantity

Price Adults Children

5 6 15

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

Calculate the price, quantity, and profit if: The amusement park charge a different price in the adult market.

Please express your answers for price and profit in whole dollars (i.e., 10,00)

Please use whole numbers for quantity (i.e. 10,27,4).

Price Quantity Total Marginal Marginal Total. mr/mc Profit

rev rev cost cost

? 6 84 ? 5 30 ? 34

13 ? 91 7 5 35 2 56

12 8 96 5 5 40 0 ?

? 9 99 3 5 40 -2 54

10 ? 100 1 5 50 -4 50

9 11 99 -1 5 55 -6 ?

? 12 96 -3 5 60 -8 36

7 ? 91 -5 5 65 -10 26

6 14 84 -7 5 70 -12 ?

5 15 75 -9 5 75 -14 0

Question 5

An amusement park, whose customers set is made up of two markets, adults and children, has developed schedules as follows:

The marginal operating cost of each unit of quantity is $5.00. Because marginal cost is a constant, so is average variable cost. Ignore fixed cost. The owners of the amusement park want to maximize profits.

Quantity

Price 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

Calculate the price, quantity, and profit: The amusement park charge a different price in the children’s market.

Please express your answers fo price and profit in whole dollars (i.e. 10.00). Please use whole for quantity (i.e. 10,27,4).

price quantity total rev marginal rev marginal cost total cost mr/mc profit

14 2 28 ? 5 10 ? ?

13 ? 52 12 5 20 7 32

? 6 72 10 5 30 5 42

11 8 88 8 5 40 3 48

10 10 100 6 5 50 1 ?

9 ? 108 4 5 60 -1 48

? 14 112 2 5 70 -3 42

7 16 112 0 5 80 -5 ?

6 ? 108 -2 5 90 -7 18

? 20 100 -4 5 100 -9 0

Question 6

An amusement park, whose customers set is made up of two markets, adults and children, has developed a demand schedule as follows:

The marginal operating cost of each unit of quantity is $5.00, because marginal cost is a constant, so is average variable cost. Ignore fixed cost. The owners of the amusement park want to maximize profits.

Quantity

Price 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

Calculate the price, quantity, and profit if: The amusement park charges the same price in the two markets combined.

Please express your answers for price and profit in whole dollars (i.e. $10.00).

price quantity total rev marginal rev marginal cost total cost mr/mc profit

14 8 112 ? 5 40 ? 72

? 11 143 10.33 5 55 5.33 88

12 ? 168 8.33 5 70 3.33 98

11 17 187 6.33 5 85 1.33 ?

? 20 200 4.33 5 100 -0.67 100

8 20 208 0.33 5 130 -4.64 ?

? 29 203 1.67 5 145 -6.67 58

6 ? 192 3.67 5 160 -8.67 ?

5 35 175 7.67 5 190 12.67 -38

Question 7

Explain the difference in the profit realized under the two situations (the price in each market or in the two markets combined.

Make sure you include the profit with and without price discrimination In your answer.

Question 8 Time Warner could offer the History Channel (H) and Showtime (S) individually or as a bundle of both.

Suppose the reservation prices of customers ( and the highest prices they are willing to pay) are presented in the boxes below.

Preferences

Showtime History Channel

Customer 1 9 2

Customer 2 3 8

Should Time Warner bundle or sell separately? Your answer needs to include the unbundled bundled profits.

Question 9

Suppose Time Warner could sell Showtime for $9.00, and History Channel for $8.00. While making Showtime – History Channel bundle available for $13.00. Should it use mixed bundling i.e., sells products both separately and as a bundle.

Your answer must include the profit with mixed bundling.