Problem sets for Microeconomics II [110051-0471]

More documents

Recommendations

Info

1 Optimal decisions using marginal analysis Exercise 1.1. A television station is considering the sale of promotional videos. It can have the videos produced by one of two suppliers. Supplier A will charge the station a setup fee of $1,200 plus $2 for each cassette; supplier B has no setup fee and will charge $4 per cassette. The station estimates its demand for the cassettes to be given by Q = 1, 600 − 200P, where P is the price in dollars and Q is the number of cassettes. a. Suppose the station plans to give away the videos. How many cassettes should it order From which supplier b. Suppose instead that the station seeks to maximize its profit from sales of the cassettes. What price should it charge How many cassettes should it order from which supplier Exercise 1.2. As the exclusive carrier on a local air route, a regional airline must determine the number of flights it will provide per week and the fare it will charge. Taking into account operating and fuel costs, airport charges, and so on, the estimated cost per flight is $2,000. It expects to fly full flights (100 passengers), so its marginal cost on a per passenger basis is $20. Finally, the airline’s estimated demand curve is P = 120 − .1Q, where P is the fare in dollars and Q is the number of passengers per week. a. What is the airline’s profit-maximizing fare How many passengers does it carry per week, using how many flights What is weekly profit b. Suppose the airline is offered $4,000 per week to haul freight along the route for a local firm. This will mean replacing on of the weekly passenger flights with a freight flight (at same operating cost). Should the airline carry freight for the local firm Explain. Exercise 1.3. Under the terms of the current contractual agreement, Burger Queen (BQ) is entitled to 20 percent of the revenue earned by each of its franchises. BQ’s best-selling is the Slopper (it slops out of the bun). BQ supplies the ingredients for the Slopper (bun, mystery meat, etc.) at cost to the franchise. The franchisee’s average cost per Slopper (including ingredients, labor cost, and so on) is $.80. At a particular franchise restaurant, weekly demand for Sloppers is given by P = 3.00 − Q/800. 2
a. If BQ sets the price and weekly sales quantity of Sloppers, what quantity and price should it set How much does BQ receive What is the franchisee’s net profit b. Suppose the franchise owner sets the price and sales quantity. What price and quantity will the owner set How does the total profit earned by the two parties compare to their total profit in part a c. Now suppose BQ and an individual franchise owner enter into an agreement in which BQ is entitled to a share of the franchisee’s profit. Will profit sharing remove the conflict between BQ and the franchise operator Under profit sharing, what will be the price and quantity of Sloppers (Does the exact split of the profit affect your answer Explain briefly.) What is the resulting total profit d. Profit sharing is not widely practiced in the franchise business. What are the disadvantages relative to revenue sharing 3
Page 1: Problem sets for Microeconomics II
Page 5 and 6: . The chief financial officer appro
Page 7 and 8: . How many fishers will settle at e
Page 9 and 10: Exercise 3.12. Flo is a university
Page 11 and 12: endorse it 90 percent of the time,
Page 13 and 14: 5 Perfect competition and monopoly
Page 15 and 16: a. What is OPEC’s optimal level o
Page 17 and 18: 6 Oligopolistic competition Exercis
Page 19 and 20: . In each table, predict the exact
Page 21: . Suppose, instead, that the airlin

Problem sets for Microeconomics II [110051-0471]

Create successful ePaper yourself

Delete template?

Save as template?