Bill Gates, even though no longer a CEO of Microsoft, still cares about the profits of his company. Assume it costs Microsoft $1 per copy of a new WindowsXX, and the inverse demand for this revolutionary product takes the form P (Q) = 60 – 5Q. A. Assume the plan to chip people worked out perfectly and Bill Gates knows exactly the willingness to pay of all consumers. What would be the profit of Microsoft then? B. Assume instead that Microsoft is allowed to do block-pricing with 2 blocks. What happens to its profit? C. Finally, assume Microsoft was able to separate it's consumers into business owners with inverse demand P (Q) = 40 – Q and others with inverse demand P (Q) = 20 –- 4Q. What would be Microsoft's profit?
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- Microsoft sells two types of office software, a word processor it calls Word, and a spreadsheet it calls Excel. Both can be produced at zero marginal cost. There are two types of consumers for these products, who exist in roughly equal proportions in the population: authors, who are willing to pay $120 for Word and $40 for Excel, and economists, who are willing to pay $50 for Word and $150 for Excel. a. Suppose that Microsoft execs decide to sell Word and Excel separately. What price should Microsoft set for Word? What price should Microsoft set for Excel? What will Microsoft's profit be from a representative group of one author and one economist? c. Suppose that Microsoft decides to bundle together Word and Excel in a package called Office, and not offer them individually. What price should Microsoft set for the package? Why? How much profit willI Microsoft generate from a representative group of one author and one economist? d. Does bundling allow Microsoft to generate higher profit…Verizon can be viewed as a first mover. Now suppose both ATT and Verizon are considering whether and how to enter a potential market. Market demand is given by the inverse demand function p= 900−q1−q2, where p is the market price margin, q1 is the quantity sold by Verizon and q2 is the quantity sold by ATT. To enter the market, a retailer must build a store. Two types of stores can be built: Small and Large. The Small store requires an investment of $50,000, and it allows the retailer to sell as many as 100 units of the goods at zero marginal cost. Alternatively, they can pay $175,000 to construct a Large store that will allow it to sell any number of units at zero marginal cost. Assume Verizon enters and builds a Large store (i.e. chooses to build a Large store L1 at the first stage.) Calculate Verizon's profit for the following cases: a.) ATT chooses not to enter N at the second stage after viewing Verizon's choice. b.) ATT chooses to build a Small store S at the second stage…Verizon can be viewed as a first mover. Now suppose both ATT and Verizon are considering whether and how to enter a potential market. Market demand is given by the inverse demand function p= 900−q1−q2, where p is the market price margin, q1 is the quantity sold by Verizon and q2 is the quantity sold by ATT. To enter the market, a retailer must build a store. Two types of stores can be built: Small and Large. The Small store requires an investment of $50,000, and it allows the retailer to sell as many as 100 units of the goods at zero marginal cost. Alternatively, they can pay $175,000 to construct a Large store that will allow it to sell any number of units at zero marginal cost. Assume Verizon stays out of the potential market (i.e. chooses not to enter N1 at the first stage, q1= 0). Calculate Verizon's profit for the following cases: a.) ATT chooses not to enter N at the second stage after viewing Verizon's choice. b.) ATT chooses to build a Small store S at the second stage…
- The table below show the willingness to pay for a chicken nuggets and fries. The MC of Nuggets and Fries is zero. If Nuggets and Fries are sold separately, what is the price of each that maximizes profit? Chicken Nuggets Fries Type I 6 2 Type II 3 5 Type III 5.50 0 Price of Nuggets = 3 Price of Fries = 5 Price of Nuggets = 5.50 Price of Fries = 5 Price of Nuggets = 3 Price of Fries = 2 Price of Nuggets = 5.50 Price of Fries = 2Suppose that managers at Honda are deciding how to price the new Honda Accord. The managers estimate that their total costs increase by $20,000 for each car they produce. They also estimate the demand curve they face; it is described by the equation: Q = -0.4 P + 16,000, where Q represents the quantity of Honda Accords they will sell and P represents the price they charge in US dollars. We can re-write that demand curve as: P = 40,000 - 2.5 Q. Take every possibly quantity that the managers might choose between and 7,000 in units of 100. For each possible quantity, calculate the associated price the managers would need to charge, the revenue they would earn, and the total costs. You can then calculate profits for each level of quantity. Highlight the cell that contains the highest value of profit. Finally, you can also approximate marginal revenue here as the change in total revenue after the next 100 cars are produced. At what quantity does marginal revenue roughly equal marginal cost?…Suppose that managers at Honda are deciding how to price the new Honda Accord. The managers estimate that their total costs increase by $20,000 for each car they produce. They also estimate the demand curve they face; it is described by the equation: Q = -0.4 P + 16,000, where Q represents the quantity of Honda Accords they will sell and P represents the price they charge in US dollars. We can re-write that demand curve as: P = 40,000 - 2.5 Q. Take every possibly quantity that the managers might choose between 0 and 7,000 in units of 100. For each possible quantity, calculate the associated price the managers would need to charge, the revenue they would earn, and the total costs. You can then calculate profits for each level of quantity. Highlight the cell that contains the highest value of profit.
- Using a graph, explain why a firm might not want to spend A on advertising, even though it shifts the firm's demand curve to the right. In the figure to the right, let D¹ and MR¹ be demand and marginal revenue before advertising. Assume the monopoly has a constant marginal cost with no fixed cost such that MR¹ = AC¹. Then, suppose the monopoly advertises and that the advertising shifts demand and marginal revenue to D² and MR². Assume advertising is a marginal cost, such that the new marginal cost after advertising is still a constant and still equals a new average cost. Using the line drawing tool, graph the marginal cost curve, reflecting the cost of the advertising, such that the monopoly breaks even from advertising. Label this curve 'MC². Carefully follow the instructions above, and only draw the required objects. p, $ per unit 30- 28- 26- 24- 22- 20- 18- 16- 14- 12- 10- 8- 6- 4- 2- 0- FN 0 2 MC¹ = AC¹ MR1 MR² D¹ D² 6 8 10 12 14 16 18 20 22 24 26 28 30 Q, QuantityUsing a graph, explain why a firm might not want to spend A on advertising, even though it shifts the firm's demand curve to the right. In the figure to the right, let D¹ and MR¹ be demand and marginal revenue before advertising. Assume the monopoly has a constant marginal cost with no fixed cost such that MR¹ = AC¹. Then, suppose the monopoly advertises and that the advertising shifts demand and marginal revenue to D² and MR². Assume advertising is a marginal cost, such that the new marginal cost after advertising is still a constant and still equals a new average cost. Using the line drawing tool, graph the marginal cost curve, reflecting the cost of the advertising, such that the monopoly breaks even from advertising. Label this curve 'MC².! Carefully follow the instructions above, and only draw the required objects. p, $ per unit 30- 28- 26- 24- 22- 20- 18- 16- 14- 12- 10- 8+ 6- 4- 2+ 0- 0 2 V MC = A ▬▬▬▬▬ AMR MR² D 4 6 8 10 12 14 16 18 20 22 24 26 28 Q, Quantity D²Suppose the typical LA Rams fan has the following demand curve for Bills football games: P = 200 – 5G where G is the number of games the fans attend. Suppose the Bills have the chance to offer a various multi-game season ticket packages and tickets to individual games. If the Rams want to sell a particular fan single tickets to all eight home games, what price must they charge? $___ What should be the total price for a LA Rams 8-game season ticket package? $___ What should be the average ticket price for an LA Rams 4-game season ticket package? $___ Suppose the Rams have the opportunity to sell tickets to individual games. What price should they charge? $___
- Suppose that the demand curve for movies for college students is Q, = 80 - 1.00p 100 and for other town residents is 90- 80 Q2 = 20 - 0.25p. 70- The town's total demand curve is 60 50- E 40- 30- 20 60 Q, Movies 20 40 80 100 120 System Preferences www 1 tv 30 MacBook Air DII DD 80 F10 F9 F8 esc F7 F5 F6 F1 F2 F3 @ 23 $ 2 3 4 5 7 9 1 Q W R Y U P. Price per movie * COJoe has just moved to a small town with only one golf course, the Northlands Golf Club. His inverse demand function is p=140-2q, where q is the number of rounds of golf that he plays per year. The manager of the Northlands Club negotiates separately with each person who joins the club and can therefore charge individual prices. This manager has a good. idea of what Joe's demand curve is and offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds as he wants at $20, which is the marginal cost his round imposes on the Club. Joe marries Susan, who is also an enthusiastic golfer. Susan wants to join the Northlands Club. The manager believes that Susan's inverse demand curve is p=120-2q. The manager has a policy of offering each member of a married couple the same two-part prices, so he offers them both a new deal. What two-part pricing deal maximizes the club's profit? Will this new pricing have a higher or lower access fee than in Joe's original…The following table shows the daily demand schedule for round-trip train commutes between Dallas and Los Angeles for travelers: Demand Schedule of Business Travelers Price QD $1,100 310 $810 510 $510 810 $310 1,100 Suppose a train line's marginal cost per seat for the round-trip is $300. For profit-maximization, how much should the train-line charge per round-trip? Show your process using the half-way rule of Marginal Revenue for a monopoly.