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Econimics Three Problems




Question;Question;1;Monterey's;Restaurant is currently the only restaurant in town that sells Mexican food.;Monterey's advisors estimate that the demand for Mexican food in the area is;given by;Q;= 10 -0.5P;Where;P is the average price of a meal and Q is the quantity of meals. The;restaurant' s costs are estimated with the following equation;TC;= 150 + 5Q + 0.5Q2;e.;Given this information, how much output should Monterey's produce to maximize;profits?;f.How;much should it charge for each meal? Is Monterey's restaurant making a profit?;If yes, how much?;g.Without;doing any calculations, if you were Monterey's advisors, what would you;recommend they do to improve their profits?;h.Suppose;that price discrimination was an option available to Monterey's? What would;Monterey's need to do to be able to practice second or third degree price;discrimination?;Show;all your work. Your explanation determines your grade.;Question;2;When;producing 10 units, Jean has total variable costs of $400, total fixed costs of;$550, and assets of $3000. Assume you can approximate MC with AVC.;a.;If she wants a return of 10%, what price should she charge?;b.;Suppose that instead of determining price based on his target return, Jean;decides to use a standard markup pricing scheme. What is the optimal markup for;Jean if she estimates that the price elasticity of demand for her product is;-2?;c.;If she uses the optimal markup obtained in part b, how much should he charge;for her product?;d.;Given your answers to parts a and c, which pricing mechanism should he chose?;How would your answer change if the price elasticity for her product decreases;considerably due to an decrease in the availability of substitutes.;Show;all your work. Your explanation determines your grade;Question3;The;Allen Corporation, a sofa retailer, wants to determine how many sofas it must;sell in order to earn a profit of $10,000 per month. The price of each sofa is;$400, the average variable cost is $200. What is the required sales volume if;fixed costs are $4000 per month?;Show;all your work. Your explanation determines your grade


Paper#57153 | Written in 18-Jul-2015

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