MANAGERIAL ECONOMICS ASSIGNMENT HELP

Chapter 8:

12. a. When a best-selling book was first released in paperback, the Hercules. Bookstore chain seized a profit opportunity by setting a selling price of $9 per book (well above Hercules’ $5 average cost per book). With

paperback demand given by P = 15 - .5Q, the chain enjoyed sales of Q = 12 thousand books per week. (Note: Q is measured in thousands of books.) Draw the demand curve and compute the bookstore’s profit and the total consumer surplus.

b. For the first time, Hercules has begun selling books online—in response to competition from other online sellers and in its quest for new profit sources. The average cost per book sold online is only $4. As part of its online selling strategy, it sends weekly e-mails to preferred customers announcing which books are new in paperback. For this segment, it sets an average price (including shipping) of $12. According to the demand curve in part (a), only the highest value consumers (whose willingness to pay is $12 or more) purchase at this price. Check that these are the first 6 thousand book buyers on the demand curve. In turn, because of increased competition, Hercules has reduced its store price to $7 per book.

At P = $7, how many books are bought in Hercules’ stores? (Make sure to exclude online buyers from your demand curve calculation.) Compute Hercules’ total profit. Then compute the sum of consumer surplus from online and in-store sales. Relative to part (a), has the emergence of online commerce improved the welfare of book buyers as a whole? Explain.

Chapter 9:

2. A firm sells two goods in a market consisting of three types of consumers. The accompanying table shows the values consumers place on the goods. The unit cost of producing each good is $10.

Find the optimal prices for (1) selling the goods separately, (2) pure bundling, and (3) mixed bundling. Which pricing strategy is most profitable?

Chapter 10:

12. Firm A and firm B are battling for market share in two separate markets. Market I is worth $30 million in revenue; market II is worth $18 million. Firm A must decide how to allocate its three salespersons between the

markets; firm B has only two salespersons to allocate. Each firm’s revenue share in each market is proportional to the number of salespeople the firm assigns there. For example, if firm A puts two salespersons and firm B puts one salesperson in market I, A’s revenue from this market is [2/(2 + 1)]$30 = $20 million and B’s revenue is the

remaining $10 million. (The firms split a market equally if neither assigns a salesperson to it.) Each firm is solely interested in maximizing the total revenue it obtains from the two markets.

a. Compute the complete payoff table. (Firm A has four possible allocations: 3–0, 2–1, 1–2, and 0–3. Firm B has three allocations: 2–0,1–1, and 0–2.) Is this a constant-sum game?

b. Does either firm have a dominant strategy (or dominated strategies)?What is the predicted outcome?