Question

In: Economics

QUESTION 3 You manage a farm that is looking to sell oranges in both California and...

QUESTION 3

  1. You manage a farm that is looking to sell oranges in both California and Oregon. The demand for oranges in California is given by PCA = 25 - 0.5QCA and the demand for oranges in Oregon is POR = 19 - 0.3QOR. The total cost of selling oranges is TC = 10 + Q and the marginal cost is constant at MC = $1. If you cannot differentiate between customers in California and Oregon, and you are forced to charge the price that is optimal in California in both Oregon and California, how much profit will you lose compared to the profit you made in (2)? (Write answer without the negative sign nor the dollar sign.)

    (2) You manage a farm that is looking to sell oranges in both California and Oregon. The demand for oranges in California is given by PCA = 25 - 0.5QCA and the demand for oranges in Oregon is POR = 19 - 0.3QOR. The total cost of selling oranges is TC = 10 + Q and the marginal cost is constant at MC = $1. If you can differentiate between customers in California and Oregon, you should charge a price of $13 in California and a price of $10 in Oregon.


    The answer is NOT 40.

    BOLD the Correct Answer

Solutions

Expert Solution

We have the following information

Demand in California: PCA = 25 – 0.5QCA

Demand in Oregon: POR = 19 – 0.3QOR

Total cost (TC) = 10 + Q; where Q = QCA + QOR

Marginal cost (MC) = 1

Now it is given that we cannot differentiate between customers in California and Oregon, and are forced to charge the price that is optimal in California in both Oregon and California. So, for equilibrium we will equate the marginal revenue (MRCA) of California with the MC.

Total Revenue of California: TRCA = PCA × QCA

TRCA = (25 – 0.5QCA)QCA

TRCA = 25QCA – 0.5(QCA)2

MRCA = ΔTRCA/ΔQCA = 25 – QCA

Equating MRCA and MC

25 – QCA = 1

QCA = 24

PCA = 25 – 0.5QCA

PCA = 25 – 12

PCA = 13

So, in Oregon also the price will be 13. POR = 13

POR = 19 – 0.3QOR

13 = 19 – 0.3QOR

0.3QOR = 6

QOR = 20

Profit = TRCA + TROR – TC

TRCA = PCA × QCA = 13 × 24 = 312

TROR = POR × QOR = 13 × 20 = 260

TC = 10 + Q = 10 + (24 + 20) = 10 + 44 = 54

Profit = 312 + 260 – 54

Profit = 572 – 54

Profit = 518

Now it is given that when different prices are charged in California and Oregon then PCA = 13 and POR = 10.

PCA = 25 – 0.5QCA

13 = 25 – 0.5QCA

0.5QCA = 12

QCA = 24

POR = 19 – 0.3QOR

10 = 19 – 0.3QOR

0.3QOR = 9

QOR = 30

Profit = TRCA + TROR – TC

TRCA = PCA × QCA = 13 × 24 = 312

TROR = POR × QOR = 10 × 30 = 300

TC = 10 + Q = 10 + (24 + 30) = 10 + 54 = 64

Profit = 312 + 300 – 64

Profit = 612 – 64

Profit = 548

So, when we charge the equilibrium price of California in Oregon than the total profit declines by 30 (548 – 518).


Related Solutions

You manage a farm that is looking to sell oranges in both California and Oregon.
  Price of $13 in California You manage a farm that is looking to sell oranges in both California and Oregon. The demand for oranges in California is given by PCA = 25 - 0.5QCA and the demand for oranges in Oregon is POR = 19 - 0.3QOR. The total cost of selling oranges is TC = 10 + Q and the marginal cost is constant at MC = $1. If you cannot differentiate between customers in California and Oregon,...
You manage a farm that is looking to sell oranges in both California and Oregon. The...
You manage a farm that is looking to sell oranges in both California and Oregon. The demand for oranges in California is given by PCA = 25 - 0.5QCA and the demand for oranges in Oregon is POR = 19 - 0.3QOR. The total cost of selling oranges is TC = 10 + Q and the marginal cost is constant at MC = $1. If you cannot differentiate between customers in California and Oregon, and you are forced to charge...
You manage a farm that is looking to sell oranges in both California and Oregon. The...
You manage a farm that is looking to sell oranges in both California and Oregon. The demand for oranges in California is given by PCA = 25 - 0.5QCA and the demand for oranges in Oregon is POR = 19 - 0.3QOR. The total cost of selling oranges is TC = 10 + Q and the marginal cost is constant at MC = $1. If you cannot differentiate between customers in California and Oregon, and you are forced to charge...
2. You manage a farm that is looking to sell oranges in both California and Oregon....
2. You manage a farm that is looking to sell oranges in both California and Oregon. The demand for oranges in California is given by PCA = 25 - 0.5QCA and the demand for oranges in Oregon is POR = 19 - 0.3QOR. The total cost of selling oranges is TC = 10 + Q and the marginal cost is constant at MC = $1. If you can differentiate between customers in California and Oregon, you should charge a price...
2. You manage a farm that is looking to sell oranges in both California and Oregon....
2. You manage a farm that is looking to sell oranges in both California and Oregon. The demand for oranges in California is given by PCA = 25 - 0.5QCA and the demand for oranges in Oregon is POR = 19 - 0.3QOR. The total cost of selling oranges is TC = 10 + Q and the marginal cost is constant at MC = $1. If you can differentiate between customers in California and Oregon, you should charge a price...
You manage a farm that is looking to sell oranges in bothCalifornia and Oregon.
You manage a farm that is looking to sell oranges in both California and Oregon. The demand for oranges in California is given by PCA = 25 - 0.5QCA and the demand for oranges in Oregon is POR = 19 - 0.3QOR. The total cost of selling oranges is TC = 10 + Q and the marginal cost is constant at MC = $1. If you can differentiate between customers in California and Oregon, you should charge a price of...
A grocery store purchases bags of oranges from California to sell in their store. The weight...
A grocery store purchases bags of oranges from California to sell in their store. The weight of a bag of California oranges is normally distributed with a mean of 7.1 pounds and a variance of 1.21 pounds2. A bag of California oranges is randomly selected in the grocery store. (Round all probability answers to four decimal places.) a. What is the probability that a randomly selected California orange bag purchased by a customer weighs more than 8 pounds? b. What...
A grocery store purchases bags of oranges from California to sell in their store. The weight...
A grocery store purchases bags of oranges from California to sell in their store. The weight of a bag of California oranges is normally distributed with a mean of 7.7 pounds and a variance of 1.21 pounds2. A bag of California oranges is randomly selected in the grocery store. (Round all probability answers to four decimal places.) a. What is the probability that a randomly selected California orange bag purchased by a customer weighs more than 8 pounds? b. What...
Assume that you manage a firm that sells calculators. You want to sell calculators to both...
Assume that you manage a firm that sells calculators. You want to sell calculators to both commercial users and home users, and so you have developed 2 types of calculators - fancy and basic calculators. Each customer type has the following valuations for each type of calculator: Home User Commercial User Fancy Calculator $100 $200 Basic Calculator $30 $50 If you have an 100 home users and 100 commercial users that at most will buy 1 calculator each, you will...
Assume that you manage a firm that sells calculators. You want to sell calculators to both...
Assume that you manage a firm that sells calculators. You want to sell calculators to both commercial users and home users, and so you have developed 2 types of calculators - fancy and basic calculators. Each customer type has the following valuations for each type of calculator: Home User Commercial User Fancy Calculator $100 $200 Basic Calculator $30 $50 If you have an 100 home users and 100 commercial users that at most will buy 1 calculator each, how much...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT