ECO 353 Study Guide - Quiz Guide: Marginal Cost, Marginal Revenue, Pennsylvania Route 100

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orangegnat648

3 Mar 2019

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Students are willing to pay for a computer and for additional software. Workers are willing to pay for a computer and on the additional software. If the unit cost for computers is and the unit cost for the additional software is , . 900: if there is no bundling what is the price for , a computer (30 points) 200: if the computer and additional software are only sold together under a pure bundling strategy what is the price of the bundle? (40 points) 700: t f consumption, then an increase in the price of one will cause a decrease in demand for the other. If two goods produced by a single firm are substitutes in: t f consumption, then a decrease in the price of one will cause an increase in demand for the other. Additional products should be introduced by a single-plant firm: t f. Joint production is the result of production interdependence.

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Your software company has just completed the first version of SpokenWord, a voice-activated word processor. As a marketing manager, you have to decide on the pricing of the new software. You commissioned a study to determine the potential demand for SpokenWord. From this study, you know that there are essentially two market segments of equal size, professionals, and students (one million each). Professionals would be willing to pay up to $400 and students up to $100 for the full version of the software. A substantially scaled-down version of the software would be worth $50 to consumers and worthless to professionals. It is equally costly to sell any version. In fact, other than the initial development costs, production costs are zero. Although you know there are two market segments, you cannot directly identify a consumer as belonging to a specific market segment.

(a) What are the optimal prices for each version of the software?

(b) Suppose that, instead of the scaled-down version, the firm sells an intermediate version that is valued at $200 by professionals and $75 by students. Is the firm better off by selling the intermediate version instead of the scaled-down version?

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A campus auditorium sells tickets at half price to students during the last 30 minutes before a concert starts. This is an example of:

(A) Price discrimination.

(B) peak-load pricing.

(D) None of the statements is correct.

A firm with market power has an individual consumer demand of Q = 20 - 4P and costs of C = 4Q. What is the optimal amount of this product to package in a single block?

(A) 2 (B) 3 (C) 4 (D) 5

The following table contains different consumers' values for three software titles: PowerPoint, Excel, and Word. Suppose there are 100 consumers of each type. It costs Microsoft $5 to produce each piece of software. If Microsoft wants to devise a pricing strategy that is incentive compatible between consumer types and will maximize its profit, then it should:

Consumer Types PowerPoint Excel Word

Accountants $75 $100 $150

Marketing/Sales $125 $80 $135

Admin Assistants $50 $175 $75

(A) Charge $50 for PowerPoint, $80 for Excel, and $75 for Word.

(B) Charge a single price of $300 for the bundle of PowerPoint, Excel, and Word.

(D) Charge $325 for the bundle of PowerPoint, Excel, and Word and permit consumers to purchase each software title individually at $81.10 each.

Which of the following can be used to learn about the market structure?

(A) Four-firm concentration ratio

(B) Lerner index

(D) All of the choices may be used to make inferences about market structure.

If a monopolistically competitive firmâs marginal cost increases, then in order to maximize profits, the firm will:

(A) Reduce output and increase price.

(B) Increase output and decrease price.

(D) Reduce both output and price.

Your software company has developed Idraw, an innovative graphic-design program. As marketing manager, you have to decide on the pricing of the new software. You commissioned a study to determine the potential demand for Idraw, specifically for three different versions of the program: Idraw-max (the full version), Idraw-1 (an intermediate version), and Idraw-0 (a substantially scaled down version). From this study you learn that there are essentially two market segments of equal size, professionals and students (100,000 individuals in each segment). The willingness to pay (in $) of these two types of potential customers, for each of the versions of the software that you are considering, is summarized in the following table:

	Professionals	Students
Idraw-max	400	100
Idraw-1	200	75
Idraw-0	0	50

Throughout, assume that it is equally costly to sell any version. In fact, other than the initial development cost (by now a sunk cost), production costs are zero.

(a) Suppose that the company markets only Idraw-max and Idraw-0. What are the optimal prices for each of these two versions?

(b) Suppose that the company markets only Idraw-max and Idraw-1. If they are priced at $400 and $75, respectively, which version would professionals and students buy? (Hint: consumers buy the version that provides the highest net surplus). What is the profit of the firm in this case?

(c) Again assuming that only Idraw-max and Idraw-1 are being marketed, if Idraw-1 is priced at $75, what is the highest possible price for Idraw-max that still would induce professionals to buy this full version? What would the firm

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ECO 353 Study Guide - Quiz Guide: Marginal Cost, Marginal Revenue, Pennsylvania Route 100

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