# Me Exercise

Pages: 6 (1851 words) Published: January 12, 2013
Chapter 2: DQ7 p.55
PCCW provides broadband Internet access in Hong Kong under the brand name, Netvigator. Table 1 lists several of the plans offered in April 2004. Table 1: Netvigator Broadband Internet Access Plans|

Plan| Monthly Subscription| Included Hours| Charge per additional hour| Bandwidth| Basic| HK\$198| 20| HK\$2| Up to 1.5 Mbps|
3M Single User Plan| HK\$298| 100 | HK\$2| Up to 3.0 Mbps| 6M Single User Plan| HK\$398| 200| HK\$2| Up to 6.0 Mbps| a.Wong subscribes to the 6M plan and uses 150 hours a month. Suppose that Wong's demand curve is a straight line such that if the price of access were HK\$20 per hour or higher, she would buy nothing. Draw her demand curve, and calculate her buyer surplus. b.Suppose that Wong switches to the 3M plan. Referring to her demand curve, how many hours would she use each month? Calculate her buyer surplus. Answer:

(a) Refer to the following diagram for Wong’s demand curve. Her buyer surplus with the 6M plan is ½ x 20 x 150 – 398 = \$1,102.

(b) With the 3M plan, she would use 135 hours a month (35 hours in excess of the “included time”). Her buyer surplus would be ½ x [20 + 2] x 135 – 298 -70= \$1,117.

Chapter 3: DQ 11 p.99
This question applies techniques introduced in the math supplement to Chapter 2. Suppose that a car rental business faces a demand represented by the equation, D = 30 - p + 0.4Y, where D is the quantity demanded in rentals a month, p is the price in dollars per rental, and Y is the average consumer's income in thousands of dollars a year.  a.      Suppose that income, Y = 100, and car rental business raises the price from p = 30 to p = 35.  Calculate the own-price elasticity of demand. b.     Suppose that income, Y = 110, and car rental business raises the price from p = 30 to p = 35.  Calculate the own-price elasticity of demand. c.      Suppose that the price, p = 30, and that income rises from Y = 100 to Y = 110.  Calculate the income elasticity of demand. d.     Suppose that the price, p = 35, and that income rises from Y = 100 to Y = 110.  Calculate the income elasticity of demand.

Chapter 8: DQ 2 p.300
Table 8.2 describes the demand and costs for Solar Pharmaceutical's Gamma-1 drug. Suppose that the costs have been changed to a fixed cost of \$75 million, and a constant marginal cost of \$50 per unit. The demand remains the same. a. Prepare a new table of revenues and costs according to the new data. b. What is the profit-maximizing price and production scale? c. At that production scale, what are the marginal revenue and the marginal cost? Answer

(a) Modified version of Table 8.2.
Price| Sales| Total| Marginal| Total| Marginal| Profit| | | Revenue| revenue| cost| cost| |
(\$)| | (\$)| (\$)| (\$)| (\$)| (\$)|
200| 0.0| 0| | 75| | -75|
190| 0.2| 38| 190| 85| 50| -47|
180| 0.4| 72| 170| 95| 50| -23|
170| 0.6| 102| 150| 105| 50| -3|
160| 0.8| 128| 130| 115| 50| 13|
150| 1.0| 150| 110| 125| 50| 25|
140| 1.2| 168| 90| 135| 50| 33|
130| 1.4| 182| 70| 145| 50| 37|
120| 1.6| 192| 50| 155| 50| 37|
110| 1.8| 198| 30| 165| 50| 33|
100| 2.0| 200| 10| 175| 50| 25|
90| 2.2| 198| -10| 185| 50| 13|
Note: Sales, total revenue, total cost, and profit in millions| (b) Two prices yield the same maximum profit of \$37 million a year. One of the profit-maximizing prices is \$120 per unit, and the corresponding scale is 1.6 million units per year. Comment: If we analyzed the demand in greater detail with price increments of \$5, we would determine that the actual profit-maximizing price is \$125, which yields a profit of \$37.5 million a year. (c) At that scale, the marginal revenue = marginal cost = \$50 per unit.

Chapter 8: DQ 10 p.303
Suppose that Neptune Music has the copyright to the latest CD of the heavy Iron Band. The market demand schedule for the CD is: Q =...