Question Details

(solution) can someone help me graph the points for figure 9-12 on the last


can someone help me graph the points for figure 9-12 on the last page.


BUSI 620

 

Answers for QCT 6

 

Salvatore?s chapter 12:

 

a. Discussion Questions:

 

7. Quantity discounts do lead to savings on handling costs on the part of the firm. That is,

 

the firm may incur lower paperwork costs per unit sold for large than for small orders,

 

may be charged lower transportation costs per unit, and so on. To the extent that

 

quantity discounts reflect only these costs savings on the part of the firm in handling large

 

orders, they do not represent price discrimination. If the amount of the quantity

 

discounts exceeds the cost savings that result to the firm from handling large orders, then

 

the difference does represent price discrimination.

 

11. (a) In the absence of an external market for the intermediate product, the transfer

 

price for the intermediate product is given by the marginal cost of the production division

 

at the best level of output for the intermediate product. If 1 unit of the

 

intermediate product is required to produce each unit of the final product, the best

 

level of output of the intermediate product is equal to the best level of output of

 

the final product.

 

(b) When a perfectly competitive external market for the intermediate product exists,

 

the transfer price for intracompany sales of the intermediate product is given by the

 

external competitive price of the product.

 

(c) When the transfer product can be sold in an imperfectly competitive external market,

 

the (internal) transfer price of the intermediate product is given at the point at which

 

the net marginal revenue of the marketing division of the firm is equal to the marginal

 

cost of the production division at the best level of output of the intermediate product,

 

and the price on the external market is given on the external demand curve.

 

13. (a) The advantages of cost-plus pricing are (1) it requires less information than the

 

MR = MC rule, (2) it is relatively simple and easy to use, (3) it usually results in

 

relatively stable prices, and (4) it provides a clear indication for price increases

 

when costs rise.

 

(b) The disadvantages of cost-plus pricing are (1) it is often based on accounting and

 

historical costs rather than on replacement or opportunity costs (cost-plus pricing,

 

however, could be based on the appropriate cost concepts), (2) it is based on

 

average rather than on marginal costs (to the extent, however, that AC = MC over

 

the normal or standard level of output, this does not create much of a problem), and (3)

 

it ignores conditions of demand (since firms usually apply higher markups to

 

products with a less elastic demand than to products with a more elastic demand,

 

however, cost-plus pricing leads to approximately the profit-maximizing price).

 

(c) The correct pricing and output decisions by a firm involve incremental analysis. That

 

is, a firm should lower the price of the product, introduce a new product, accept a new

 

order, etc., if the incremental revenue from the action exceeds the incremental cost. When excess capacity exists in the short run, overhead or fixed costs are irrelevant.

 

Correct incremental analysis, however, involves taking into consideration the shortrun

 

as well as the long-run implications of the managerial decision, and all the

 

important demand and production interrelationships. Only when the firm operates

 

with no idle capacity will incremental cost and full-cost pricing lead to the same results.

 

b. Problems:

 

12. (a) The monopolist's total revenue will be larger with second-degree price

 

discrimination when the batches on which the monopolist charges a uniform price are

 

smaller. In fact, the smaller the batches are, the more the monopolist approaches the

 

results of first degree price discrimination (under which the monopolist extracts all of the

 

consumers' surplus and maximizes total revenue and profits). As pointed out in the text,

 

however, this is very difficult or prohibitively expensive to do.

 

(b) A two-part tariff is the pricing practice whereby a monopolist maximizes its total

 

profits by charging a usage fee or a price equal to its marginal cost and an initial or

 

membership fee equal to the entire consumer surplus. Bundling, on the other hand, is a

 

common form of tying in which the monopolist requires customers buying or leasing one

 

of its products or services to also buy or lease another product or service when customers

 

have different tastes but the monopolist cannot price discriminate.

 

Spreadsheet problem 1 (p. 523)

 

1. (a) TR = $24. Since the consumer would be willing to pay $33 for 6 units of the

 

commodity, the consumer?s surplus is $9.

 

(b) With first-degree price discrimination, the monopolist?s TR = $33 and the consumer?s

 

surplus is zero.

 

(c) By charging P = $5.50 for the first 3 units of the commodity and $4 for the next 3

 

units, the monopolist?s TR = $28.50 and the consumer?s surplus is $4.50. In this case, the

 

monopolist would be practicing second-degree price discrimination

 

Froeb and McCann?s chapter 14:

 

a. Individual problems:

 

14-1

 

Newspaper vs. Soft Drink Vending Machines

 

For most people, the marginal value of a second newspaper is zero. So even when given

 

the chance to take a second newspaper, most consumers won?t do it. In contrast, the

 

marginal value of a second can of soda is positive. Many consumers would take the extra

 

soda if given the chance.

 

14-2 Movie Theater Price Discrimination

 

You should charge $7.00 for movies and offer a $2.00 senior citizen discount.

 

Optimal Price w/ No Price Discrimination

 

Price Quantity Revenue MR

 

MC

 

$10

 

1

 

$10

 

$10

 

$3.5

 

9

 

2

 

18

 

8

 

3.5

 

8

 

3

 

24

 

6

 

3.5

 

7

 

4

 

28

 

4

 

3.5

 

6

 

5

 

30

 

2

 

3.5

 

5

 

6

 

30

 

0

 

3.5

 

4

 

7

 

28

 

-2

 

3.5

 

3

 

8

 

24

 

-4

 

3.5

 

2

 

9

 

18

 

-6

 

3.5

 

1

 

10

 

10

 

-8

 

3.5 Profit

 

$6.50

 

11.00

 

13.50

 

14.00

 

12.50

 

9.00

 

3.50

 

-4.00

 

-13.50

 

-25.00 If you charge a single price, operating profits are largest at a price of $7 and a quantity of

 

4. You earn $14.

 

Optimal Price for Low-Value Consumers

 

Price Quantity Revenue MR

 

MC

 

$5

 

1

 

$5

 

$5

 

$3.5

 

4

 

2

 

8

 

3

 

3.5

 

3

 

3

 

9

 

1

 

3.5

 

2

 

4

 

8

 

-1

 

3.5

 

1

 

5

 

5

 

-3

 

3.5 Profit

 

$1.50

 

1.00

 

-1.50

 

-6.00

 

-12.50 If you can offer senior citizens discounts, you want to offer a $2 discount for seniors, i.e.

 

a price of $5. This allows you to gain an additional $1.50 in profit. Salvatore?s chapter 13:

 

a. Discussion Questions:

 

8. Even though either a subsidy to install antipollution equipment or a tax on polluters

 

reduces the level of pollution, they represent basically different approaches to pollution

 

control because of their different implications as to who owns the environment.

 

A subsidy implies that the firm has the right to pollute so that society must subsidize

 

the firm to install antipollution equipment. A tax implies that society has the right to

 

a clean environment and the tax is a penalty on polluters. Polluters must, thus, reimburse

 

society for the damages created by the pollution they generate. Most people prefer taxes to reduce pollution because they recognize society's right to a clean environment.

 

10. Given the difficulties of regulating public utilities, many European countries have

 

nationalized the companies that supply electricity, gas, water, local telephone, and local

 

transportation services. The difficulty with this policy is that it removes, even more than

 

regulation does, any incentive for economic efficiency in the provision of these basic

 

services. Specifically, in the absence of any competition and facing even less scrutiny

 

than the managers of regulated public utility companies, the public servants who manage

 

the nationalized public utility companies have less incentive than the managers of

 

regulated public utilities to produce the best-quality service at the lowest possible price.

 

Nationalization, therefore, does not seem to be the answer to the efficiency problems

 

faced by public utilities.

 

b. Problems:

 

12. Before the merger, the Herfindahl index for the 10 equal-sized firms is 1,000. After

 

the merger, H = 1,200 for the nine remaining firms. Since the postmerger index falls

 

between 1,000 and 1,800 and the index increases by 300 points as a result of the merger,

 

the Justice Department was likely to challenge the merger based on its 1984 Herfindahl

 

index guideline only.

 

13. (a) Prior to the passage of the Motor Carrier Act of 1980, trucking in interstate

 

commerce was regulated by the Interstate Commerce Commission (ICC). The ICC was

 

originally set up in the nineteenth century to regulate railroads. In the early part of the

 

twentieth century, the ICC sought to protect railroads from the emerging trucking

 

industry.

 

As the trucking industry grew and matured, the ICC introduced a maze of regulations to

 

protect large established trucking firms from the competition of smaller firms. These

 

regulations restricted entry into the industry and severely stifled competition. Because

 

regulation in the trucking industry resulted from pressure from large trucking firms and

 

restricted competition, it can be regarded as a good example of the capture theory of

 

regulation.

 

(b) The passage of the Motor Carrier Act of 1980 led to the removal of most restrictions

 

to entry into the trucking industry. Many geographical and commodity restrictions on

 

independent truckers were also abolished. The result was sharply increased

 

competition in the industry, lower shipping rates, improved service, and lower profits.

 

Since 1980?1982 were years of recession and high inflation and interest rates, however,

 

it is difficult or impossible to determine how much of the pressure on trucking firms was

 

the result of deregulation and how much was due to the poor economic climate.

 

15. (a) See Figure 9.

 

The best level of output of the monopolist is 6 million units of the product or service

 

and is given by point E, at which the MC curve intersects the MR curve. The monopolist

 

sets P = $12 (point A on the D curve), faces AC = $8 (point B on the AC curve), and thus

 

earns a profit of $4 (AB) per unit and $24 million in total (the area of rectangle ABCF). (b) See Figure 10.

 

A lump-sum tax is like a fixed cost. As such, it shifts only the monopolist's AC curve up.

 

A lump-sum tax of $24 million would shift the AC curve up to AC', so that P = AC = $12

 

at the best level of output of 6 million units (given by point E, at which MR = MC) and

 

the monopolist breaks even.

 

(c) See Figure 11.

 

A per-unit tax of $3 is like a variable cost. As such, it shifts the monopolist's AC and

 

MC curves up by $3. Thus, the best level of output of the monopolist is 5 million units

 

and is given by point E', at which the MC' curve intersects the MR curve. At Q = 5

 

million, P = $13 (point A' on the D curve) and AC' = $13 (point A' on the AC'

 

curve), so that the monopolist earns a profit of $0 per unit and in total.

 

(d) See Figure 12.

 

If the government sets the price of the product or service that the monopolist sells at

 

P = $10, the market demand curve that the monopolist faces is given by GE?D and his or

 

her marginal revenue curve is given by GE?HNR. The monopolist would then behave as

 

a perfect competitor and produce 8 million units of the product or service, as indicated by

 

point E', at which P = MR = MC. At Q = 8 million units, AC = $7.5 (point H on the AC

 

curve), so that the firm would earn a profit of $2.5 (E?H) per unit and $20 million (the

 

area of rectangle E?HTG) in total.

 


Solution details:
STATUS
Answered
QUALITY
Approved
ANSWER RATING

This question was answered on: Jan 30, 2021

PRICE: $15

Solution~0001001073.zip (25.37 KB)

Buy this answer for only: $15

This attachment is locked

We have a ready expert answer for this paper which you can use for in-depth understanding, research editing or paraphrasing. You can buy it or order for a fresh, original and plagiarism-free solution (Deadline assured. Flexible pricing. TurnItIn Report provided)

Pay using PayPal (No PayPal account Required) or your credit card . All your purchases are securely protected by .
SiteLock

About this Question

STATUS

Answered

QUALITY

Approved

DATE ANSWERED

Jan 30, 2021

EXPERT

Tutor

ANSWER RATING

GET INSTANT HELP/h4>

We have top-notch tutors who can do your essay/homework for you at a reasonable cost and then you can simply use that essay as a template to build your own arguments.

You can also use these solutions:

  • As a reference for in-depth understanding of the subject.
  • As a source of ideas / reasoning for your own research (if properly referenced)
  • For editing and paraphrasing (check your institution's definition of plagiarism and recommended paraphrase).
This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student.

NEW ASSIGNMENT HELP?

Order New Solution. Quick Turnaround

Click on the button below in order to Order for a New, Original and High-Quality Essay Solutions. New orders are original solutions and precise to your writing instruction requirements. Place a New Order using the button below.

WE GUARANTEE, THAT YOUR PAPER WILL BE WRITTEN FROM SCRATCH AND WITHIN A DEADLINE.

Order Now