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1. A news magazine offers students a discount on the regular subscription rate. The total number of subscriptions is optimal, and, at the current prices, the marginal revenue from the last subscription sold to a student is $6, while the marginal revenue from the last subscription sold to a regular customer is $10. In order to maximize profit, the magazine should a. stop offering students a discount on the regular subscription rate. b. offer students a higher discount (lower the price to students). *c. offer students a lower discount (raise the price to students). d. offer all customers the same discount received by the students. 2. A drugstore offers a discount on prescriptions to senior citizens. This suggests that the absolute value of elasticity of demand for senior citizens is a. greater than one. b. less than one. c. greater than the elasticity of demand for other customers. d. less than the elasticity of demand for other customers. 3. Consider a profit maximizing price discriminator who sells to two groups. If the marginal cost of production is $10, and the elasticity of demand for group 1 is -1.5, the elasticity of demand for group 2 is -2.5, and the price paid by group 1 is $15, the price for group 2 is a. Impossible to tell. b. $8.33. c. $27. d. $15. Hint: profit maximization tells you that MR1 = MR2 . We know that MR=P(1 + 1/ε}. We can find MR1 from the information give, Set this equal to MR2 and solve for P2. 4. A multimarket price discriminator sells its product in Florida for three times the price it sets in New York. Assuming the firm faces the same constant marginal cost in each market and the price elasticity of demand in New York is -2.0, the demand in Florida a. has an elasticity of -6.0. b. is more price elastic than the demand in New York. *c. has an elasticity of -1.2. d. has an elasticity of -0.67. 5. Suppose all individuals are identical, and their monthly demand for Internet access from a certain leading provider can be represented as P =...
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