Question

Joe’s Plain-o Bikes makes and sells a single model of a basic single speed bike. Joe sells the bike to low-end bike shops for $75. They in turn retail the bike for $150. Joe’s cost of making each bike is $25 and his overhead averages out to around another $25. Answer the following: In the example of the Meanwells, we saw that, at a price of zero, consumer surplus was maximized. But there was no producer surplus. Producer surplus then increased as they raised price. Question 4 – Explain why there is a price, above which increasing price actually reduces producer surplus. Respond here The bus service the Meanwells began is the only one in their small city. We’ll also assume there’s no other alternative form of public transportation. For each of the following determinants of elasticity, evaluate the price sensitivity of their bus service at a price of $3 per ride. Question 5 – Substitutability Response here Question 6 – Need Response here Question 7 – Proportion of Budget Response here Question 8 – Are there any proactive steps the Meanwells might take to reduce the price sensitivity of their bus service so they can increase the price charged?

Answer 1

Question 4 Answer:-

when price increase then the producer surplus would also increase because the Demand for the product is increasing. Producer surplus = total revenue- total cost.

=> at 0 price the Producer surplus is maximum because the demand is maximum

=> but if the price of product is increased beyond the compititive price at which the other sellers in market sale that product in market then the consumer avoid to purchase that product and buy from other sellers so the producer surplus decrease.

=> For example if the seller sale product at price of $50 and the cost of that product is $600. there are 20 consumers buy that products then they earn surplus of $50*20 = $1000 - $600 = $400. if the the seller increase the price to $60 and similar products sale by others producer at $50 then the Demand for this products is decease and the surplus also decrease.