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Question 1. You have a product w i t h inverse demand and marginal revenue curves given
by P = 160 − 4Q and MR(Q) = 160 − 8Q. The marginal cost to produce your product i s
MC = 40 regardless of the quantity you produce.
a. Draw a graph depicting the Demand, Marginal Revenue, and Marginal Cost curves.
b. Based on your plot and equations for the curves above, determine your firm’s optimal
price, output, and the resulting profits for each of the following scenarios:
a. You charge the same unit price to all consumers.
b. You engage in first-degree price discrimination.
c. You engage in two-part pricing.
d. You engage in block pricing.
Question 2. You are the manager of a small firm that produces and sells electronic compo-
nents in a competitive domestic market (the components you sell are fully standardized and
can easily be swapped in by any of your competitors). You are concerned about two events
you recently learned about: (1) the overall market supply of similar components will decrease
by 3 percent, due to exit by foreign competitors; and (2) due to a growing U. S. economy, the
overall market demand for your components will increase by 2 percent. Your manufacturing
process is such that you can benefit from economies of scale for limited quantities, but for a
large production average costs increase with the amount of units produced. Based on this
information:
a. Should you plan to increase or decrease your production? Explain carefully.
b. How would the answer to the previous question change if the supply increases by 3
percent and the demand decreases by 3 percent? Are price and quantity the only
decisions you have to make? Explain why this is or is not the case.
...
Micro-Scholarship, What it is, How can it help me.pdf
1 Question 1. You have a product w i t h inverse d.docx
1. 1
Question 1. You have a product w i t h inverse demand and
marginal revenue curves given
by P = 160 − 4Q and MR(Q) = 160 − 8Q. The marginal cost to
produce your product i s
MC = 40 regardless of the quantity you produce.
a. Draw a graph depicting the Demand, Marginal Revenue, and
Marginal Cost curves.
b. Based on your plot and equations for the curves above,
determine your firm’s optimal
price, output, and the resulting profits for each of the following
scenarios:
a. You charge the same unit price to all consumers.
b. You engage in first-degree price discrimination.
c. You engage in two-part pricing.
d. You engage in block pricing.
2. Question 2. You are the manager of a small firm that produces
and sells electronic compo-
nents in a competitive domestic market (the components you
sell are fully standardized and
can easily be swapped in by any of your competitors). You are
concerned about two events
you recently learned about: (1) the overall market supply of
similar components will decrease
by 3 percent, due to exit by foreign competitors; and (2) due to
a growing U. S. economy, the
overall market demand for your components will increase by 2
percent. Your manufacturing
process is such that you can benefit from economies of scale for
limited quantities, but for a
large production average costs increase with the amount of
units produced. Based on this
information:
a. Should you plan to increase or decrease your production?
Explain carefully.
b. How would the answer to the previous question change if
the supply increases by 3
3. percent and the demand decreases by 3 percent? Are price
and quantity the only
decisions you have to make? Explain why this is or is not the
case.
