Question

In: Economics

You are a profit-maximizing firm. Suppose there are two types of customers (50% of 1 type,...

You are a profit-maximizing firm. Suppose there are two types of customers (50% of 1 type, 50% of the other) who shop in your specialty clothing store. Consumers of type R will pay $80 for a coat and $60 for pants. Consumers of type S will pay $60 for a coat and $75 for pants. Your firm faces no competition and but it does pay for the clothing, $50 per coat and $30 per pair of pants, i.e. MCcoat = $50 and MCpants= $30. You can't price discriminate. You offer the same prices to all your customers. (Show your work)

(A) Suppose you post a price for a coat and a price for pants. What are the profit-maximizing prices to charge? Answer: Price for coat = $_______ ; Answer: Price for pants =$_________

Suppose instead that you only offer a bundle of one coat and one pair of pants (which we would call a suit.) What is the profit-maximizing price to charge for the suit? Answer: Price for suit = $_______

Answer True or False and then show or explain how you reached your conclusion: Profits in Part (B) with bundling are higher than in Part (A) of this problem. Answer: ________________

Solutions

Expert Solution

Answer.

Part A

coat

pant

type R

80

60

type S

60

75

Cost of coat = $50

Cost of pant = $30

Profit on coat at price of $80 = $80 - $50

                                                     = $30

Profit on 2 coats at price of $60 = $120 - $100

                                                     = $20

Profit on two pants at price of $60 = $120 - $60

                                                     = $60

Profit on pant at price of $75 = $75 - $30

                                                     = $45

As by selling one coat for $80 we will get more profit that is $30 then by selling two coats at $60 which is $20. In the case of pants, we will sell two pants each for $60 and make the profit of $60 because by selling only one pant at $75 we are getting the profit of only $45.

Price of Coat = $80

Price of Pant = $45

Part B

At the cost of $135 all the will buy the suit, there will be a profit of $55 on each set. Because if we sell the suit at the price of $140 only half of the customers will buy it and we will have a profit of only $5 more that is $60.

Part c

Suppose if there are 100 customers.

Profit on coats = 100($30) = $3000

Profit on pants = 100($30) = $3000

Total profit = $6000

Profit on Suits = 100($55)

                          = $5500

The statement is true.


Related Solutions

You are a profit-maximizing firm. Suppose there are two types of customers (50% of 1 type,...
You are a profit-maximizing firm. Suppose there are two types of customers (50% of 1 type, 50% of the other) who shop in your specialty clothing store. Consumers of type R will pay $80 for a coat and $60 for pants. Consumers of type S will pay $60 for a coat and $75 for pants. Your firm faces no competition and but it does pay for the clothing, $30 per coat and $50 per pair of pants, i.e. MCcoat =...
Peerless Manufacturing is a profit-maximizing firm and, operating at capacity, it can produce 50 units of...
Peerless Manufacturing is a profit-maximizing firm and, operating at capacity, it can produce 50 units of output per production period using any one of the following techniques of production. The market price of land, labor, capital are $5, $4, $6, respectively. And the profit associated with T1 is $124. TECHNIQUE T1 T2 T3 T4 LAND 8 8 8 8 LABOR 16 18 20 22 CAPITAL 12 8 6 3 The price of a unit of output is _______. If this...
1. Suppose, a perfectly competitive firm is trying to determine its profit-maximizing level of output. The...
1. Suppose, a perfectly competitive firm is trying to determine its profit-maximizing level of output. The product sells for $260 per unit. The total cost function is given by C = 1000 + 80Q – 6Q2 + .2Q3. Find the equilibrium price and maximum profits. Also, find the shutdown point for this firm. 2. You are the manager of a monopolistically competitive firm, and your demand and Cost functions are given by Q = 20 – 2P and C =...
A queueing system serves two types of customers. Type 1 customers arrive according to a Poisson...
A queueing system serves two types of customers. Type 1 customers arrive according to a Poisson process with a mean rate of 5 per hour. Type 2 customers arrive according to a Poisson process at a mean rate of 3 per hour. The system has two servers, both of which serve both types of customer. All service times have exponential distribution with a mean of 10 minutes. Service is provided on a first-come-first-served basis. a. What is the probability distribution...
A queueing system serves two types of customers. Type 1 customers arrive according to a Poisson...
A queueing system serves two types of customers. Type 1 customers arrive according to a Poisson process with a mean rate of 5 per hour. Type 2 customers arrive according to a Poisson process at a mean rate of 3 per hour. The system has two servers, both of which serve both types of customer. All service times have exponential distribution with a mean of 10 minutes. Service is provided on a first-come-first-served basis. a. What is the probability distribution...
A queueing system serves two types of customers. Type 1 customers arrive according to a Poisson...
A queueing system serves two types of customers. Type 1 customers arrive according to a Poisson process with a mean rate of 5 per hour. Type 2 customers arrive according to a Poisson process at a mean rate of 3 per hour. The system has two servers, both of which serve both types of customer. All service times have exponential distribution with a mean of 10 minutes. Service is provided on a first-come-first-served basis. a. What is the probability distribution...
Suppose a profit-maximizing firm can effectively engage in second-degree price discrimination and is the only firm...
Suppose a profit-maximizing firm can effectively engage in second-degree price discrimination and is the only firm present in this market. The firm wishes to (and successfully does) impose a block tariff that consists of three separate blocks. The inverse market demand curve is given by P = a − bQ. The firm’s total cost curve is T C = f + cQ. The firm’s profit-maximizing total quantity sold?
Two types of customers make up the market for Armoyas. There are 100 type A customers,...
Two types of customers make up the market for Armoyas. There are 100 type A customers, each of whom is willing to pay up to $10 for an Armoya. There are 50 type B customers, each willing to pay up to $8 for an Armoya. No customer wishes to buy more than a single Armoya. The monopolist cannot differentiate between the types of customer. The average and marginal cost of production is constant at $6/Armoya. a)What is the selling price...
Two types of customers make up the market for Armoyas. There are 80 type A customers,...
Two types of customers make up the market for Armoyas. There are 80 type A customers, each of whom is willing to pay up to $10 for an Armoya. There are 40 type B customers, each willing to pay up to $8 for an Armoya. No customer wishes to buy more than a single Armoya. The monopolist cannot differentiate between the types of customer. The average and marginal cost of production is constant at $6/Armoya. What is the selling price...
Suppose a profit-maximizing firm can produce 100 units of a hypothetical product, wendals (selling at a...
Suppose a profit-maximizing firm can produce 100 units of a hypothetical product, wendals (selling at a price of $1 per unit), by combining labor, land, capital, and entrepreneurial ability in each of the four ways shown in the table below. Assume further that the firm can hire labor at $6 per unit, capital at $4 per unit, and entrepreneurship at $2 per unit.    TECHNIQUES A B C LABOR 4 6 8 LAND 4 3 CAPITAL 5 4 ENTREPRENEURSHIP 1...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT