Question

#1The manager of the party is considering whether to use uniform pricing or two-part-pricing . Your willingness to pay for rides for the party is P = 48 – (0.75)×Q, where P is the ticket price per ride and Q is the number of rides. The amusement park has a marginal cost of $5 for each additional rise. Its fixed cost for handling the party is $20. Show all your work in an excel spreadsheet.

a) Create a spreadsheet with quantity, price, consumer surplus, revenue, marginal revenue, cost marginal cost, and profit as column headings. Fill in the spreadsheet’s cells for Q=5 to Q=50 in increments of 5 units. If the manager uses uniform pricing, what is the profit-maximizing ticket price per ride, the number of rides, and the profit earned by the park?

b) Now suppose the manager uses two-part pricing with a per-ride price equal to marginal cost and a profit maximizing entry fee. Determine the price per ride, the number of rides, and the total profit in this case.

#2 The inverse market demand curve for a duopoly market is P = 24-Q = 24-q₁-q₂, where Q is the market output, and q₁ and q₂ are the outputs of Firms 1 and 2, respectively. Each firm has a constant marginal cost of 6 and a fixed cost of 8. Solve the problem algebraically.

a) Find the Nash-Cournot best response curve for each firm. Find the equilibrium quantities.

b) If Firm 1 expects Firm 2 to produce 10 units of output, would Firm 1 shut-down in the short-run?

Answer 1