Question 5: (10 points)
Your cost of producing each unit of output is: C(q)=2q, with a corresponding marginal cost of:
MC(q)=2. Each customer for your product has an (inverse) demand curve of:P=14-2q.
The corresponding marginal revenue, per customer, is: MR(q)=14-4q. ( On the graph y=price, and x=quantity)
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a) On the graph below, sketch the marginal revenue, marginal cost, and (inverse) demand
                 curves
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               b) Assuming you can only charge a single price to each customer, solve for the profit maximizing
quantity sold to each customer, Q* , and corresponding price, P*. How much
profit do you earn on each customer?
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c) Now, instead of charging a single price per unit sold, you charge a single price for each block sold to each customer. Solve for the size of each block (i.e. the number of units included in each block). (hint: when using block pricing, you will choose the output level that is efficient, i.e. where the marginal cost curve hits the (inverse) demand curve.
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d) Solve for the block price. (hint: set a price that exactly extracts the entire consumer value,
where the consumer is the area below the (inverse) demand curve and above zero. Hint
2: the consumer value includes a triangle and a rectangle.)
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e) How much additional profit does the firm earn by using block pricing instead of setting a
single price?
Answers
Status NEW
Posted 03 May 2017 04:05 AM
My Price 8.00
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