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Clearvoice is a wireless telephone monopolist in a rural area. There are 100 consumers, each of whom has a monthly demand curve for wireless minutes of Qd = 100 - 100P, where P is the per-minute price in dollars. The marginal cost of providing wireless service is 10 cents per minute. Suppose that Clearvoice charges 40 cents per minute.

How large a fixed fee can Clearvoice charge and still persuade consumers to buy the service?

What will be its profit from each consumer? [Hint: Recall that the largest fixed fee is equal to the consumer surplus of each customer at the price of 40 cents/minute.]

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Related questions


A friend of yours is considering two cell phone service providers. Provider A charges $120 per month for the service regardless of the number of phone calls made. Provider B does not have a fixed service fee but instead charges $1 per minute for calls. Your friend's monthly demand for minutes of calling is given by the equation QD= 150 - 50P, where P is the price of a minute.

a. With each provider, what is the cost to your friend of an extra minute on the phone?

Provider A $
Provider B $
b. In light of your answer to (a), how many minutes would your friend spend on the phone with each provider?

Provider A minutes
Provider B minutes
c. How much would he end up paying each provider every month?

Provider A $
Provider B $
d. How much consumer surplus would he obtain with each provider? (Hint: Graph the demand curve and recall the formula for the area of a triangle.)

Provider A $
Provider B $
e. Which provider would you recommend that your friend choose?

Consider a manufacturer that sells its product to a retailer who resale it to final consumers. The two firms do not have any production costs. The market has 100 consumers of type A and 80 consumers of type B. Each consumer would like to buy at most one unit. A consumer of type A is willing to pay up to 70 and a consumer of type B is willing to pay up to 50. The manufacturer has the bargaining power to offer a contract to the retailer. The retailer has an alternative profit of 1000 and will agree to the manufacturer's contract as long as the retailer can earn at least 1000.

(a) Suppose that the manufacturer can only charge a wholesale price (price perunit), w. The retailer decides whether to accept or reject the manufacturer’s offer, and then the retailer decides on the price to final consumers. What is the wholesale price that the manufacturer offers? What are the price, quantity and the profits of the manufacturer and the retailer?

(b) Suppose now that the manufacturer can charge two-part tariff that includes a wholesale price, w, and a fixed fee, T. The retailer decides whether to accept or reject the manufacturer’s offer, and then the retailer decides on the price to final consumers. What are the wholesale price and fixed fees that the manufacturer offers? What are the price, quantity and the profits of the manufacturer and the retailer?

(c) Suppose that the market has only consumers of type A (100 consumers that are willing to pay up to 70). The retailer can invest a fixed cost of F = 800 (in customers' service or advertising), that convinces an additional B consumers (80 consumers with willingness to pay of 50) to enter the market. Suppose that in the first stage, the manufacturer offers a two-part tariff that includes a wholesale price, w, and a fixed fee, T. The manufacturer can also impose a minimum price restriction (RPM). The manufacturer will use minimum RPM only if there is no alternative way to maximize the manufacturer's profit. In the second stage, the retailer decides whether to accept the contract. If the retailer accepts the contract, the retailer chooses whether to invest in bringing the B consumers into the market, and then chooses a quantity. If the retailer rejects the contract, the retailer earns the alternative profit of 1000. What are the wholesale price and fixed fees that the manufacturer offers? Does the manufacturer impose RPM? Does the retailer invest in attracting the B consumers? What are the price, quantity and the profits of the manufacturer and the retailer?

Please do this

Interactive Session: Management The Mobile Pocket Office

Can you run your company out of your pocket? Perhaps not entirely, but there are many business functions today that can be performed using an iPhone, iPad, or Android mobile handheld device. The smartphone has been called the “Swiss Army knife of the digital age.” A flick of the finger turns it into a web browser, a telephone, a camera, a music or video player, an e-mail and messaging machine, and, increasingly, a gateway into corporate systems. New software applications for document sharing, collaboration, sales, order processing, inventory management, and production monitoring make these devices even more versatile business tools. Mobile pocket offices that fit into a purse or coat pocket are helping to run companies large and small.

Sonic Automotive is one of the largest automotive retailers in the United States with more than 100 dealerships in 14 states. Every year Sonic sells 250,000 new and used cars from approximately 25 different automotive brands, and it also sells auto parts and maintenance, warranty, collision, and vehicle financing services. Sonic Automotive managers and employees do much of their work on the iPhone and iPad.

Sonic developed several custom iPhone and iPad applications to speed up sales and service. Virtual Lot, a dealer inventory app, lets sales associates quickly search for vehicles held in inventory by all Sonic dealerships. They have immediate access to vehicle information, pricing, trade-in values, interest rates, special promotions, financing, and what competitors are charging for identical vehicles. The associates can quickly find the best selection for each customer and often offer far more choices than the competition. Dealers are not limited to selling only their own inventory.

A mobile app called the Sonic Inventory Management System (SIMS) has speeded up and simplified trade-in appraisals and pricing. Sonic staff use their iPhones or iPads to take photos of a car, input the vehicle identification number (VIN) and mileage, and note any issues. The data are transmitted to corporate headquarters, which can quickly appraise the car. A Service Pad app simplifies the steps in repair and warranty work. In the past, customers with cars requiring repairs had to go inside the dealership and sit at a desk with a Sonic staff member who wrote up the repair order by hand. Now the Sonic staff members go outside to the customer's vehicle and enter the repair order on an iPad on the spot.

SKF is a global engineering company headquartered in Gothenburg, Sweden, with 140 manufacturing sites in 32 countries and 48,500 employees worldwide. SKF produces bearings, seals, lubrication systems, and services used in more than 40 industries, including mining, transportation, and manufacturing. SKF has developed more than 30 custom iPhone and iPad applications for streamlining workflows and accessing critical corporate data from anywhere in the world.

For example, a virtual reality app uses the iPhone or iPad camera to identify a factory machine and produce a 3-D overlay of the SKF parts it contains. A sensor-driven app called Shaft Align is used by SKF service teams and customers in the field. Shaft Align connects via wireless Bluetooth sensors to a piece of machinery such as a motor-driven fan to ensure that the drive shaft is running in proper alignment. If not, the app generates step-by-step instructions and a 3-D rendering to show how to manually align the motor. Then it checks the work and produces a report.

A mobile app called MOST enables factory operators to monitor some SKF factory production lines. MOST links to the back-end systems running the machinery and provides operators with key pieces of data. Operators using this mobile app are able to use secure instant messaging to communicate with managers and each other, update maintenance logs, and track products in real time as they move through the factory line.

SKF's Shelf mobile app allows sales engineers and customers to access on demand more than 5,000 pieces of product literature, catalogs, product specifications, and interactive marketing materials. Sales teams can use Shelf to create custom “shelves” to organize, annotate, and share materials with customers right from their iPhones or iPads. The iPhone, iPad, and Shelf app save company sales engineers as much as 25 minutes per day on processes and paperwork, freeing them up to spend more time in the field supporting customers. This increase in productivity is equivalent to putting 200 more sales engineers in the field.

SKF auditors perform about 60 audits per year, and each audit used to take more than a month to complete. With the SKF Data Collect app, auditors are able to use their iPads to collect data and present customers with detailed reports instantly.

SKF Seals offers specifications and information about SKF's machined and injection-molded seals and plastic parts, while the Seal Select app helps users select seals and accessories using several different input parameters to find the right solution for their needs.

Case Study Questions

1. What kinds of applications are described here? What business functions do they support? How do they improve operational efficiency and decision making?

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