There are three firms that are operating in the Central University of Technology (CUT) premises. The...

 

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There are three firms that are operating in the Central University of Technology (CUT) premises. The first firm is a clothing store selling CUT gears. The second firm sells hamburgers, and the third firm sells books. Your Economics Professor has given you a group task to research about the pricing rules followed by these firms. These firms enjoy market power such that the marginal revenue (MR) for each of the firms can be represented by the expression: MR = P 1+Ep where P = price of the product, and Ep = own price Ep elasticity of demand for the firm's product. The table below shows some of the information you gathered through your research. Semester 1 Semester 2 2.2.1 Costs, revenues Clothing store Marginal Price cost 10 20 20 6 elasticity of demand -4.1 -1.5 Hamburger restaurant Marginal Price cost MR 30 30 8 Calculate the profit-maximizing mark-up factor for each of the firm and for semester 1 and comment on the relationship between the own price elasticity of demand of a product and the profit-maximizing mark-up factor. elasticity of demand -2 -5.1 2.2 Suppose a monopoly firm has a demand function given as Q = 10-P and the cost function given as C(Q) = 20. This information can be graphically illustrated as follows: CUT Bookshop AR= D Marginal cost 25 30 Price elasticity of demand -3.6 -3.6 Marginal Cost (MC) (6) Q With the aid of calculations, explain how this firm can use two-part pricing to extract all consumer surplus from the consumers. What will be the size of profit for a firm that is practicing two-part pricing? 2.2.2 Give two real-life examples where two-part pricing is applied. 2.2.3 With the aid of calculations, explain how this firm can use block pricing to extract all consumer surplus. What will be the size of profit for a firm that is practicing block pricing? (4) (2) € There are three firms that are operating in the Central University of Technology (CUT) premises. The first firm is a clothing store selling CUT gears. The second firm sells hamburgers, and the third firm sells books. Your Economics Professor has given you a group task to research about the pricing rules followed by these firms. These firms enjoy market power such that the marginal revenue (MR) for each of the firms can be represented by the expression: MR = P 1+Ep where P = price of the product, and Ep = own price Ep elasticity of demand for the firm's product. The table below shows some of the information you gathered through your research. Semester 1 Semester 2 2.2.1 Costs, revenues Clothing store Marginal Price cost 10 20 20 6 elasticity of demand -4.1 -1.5 Hamburger restaurant Marginal Price cost MR 30 30 8 Calculate the profit-maximizing mark-up factor for each of the firm and for semester 1 and comment on the relationship between the own price elasticity of demand of a product and the profit-maximizing mark-up factor. elasticity of demand -2 -5.1 2.2 Suppose a monopoly firm has a demand function given as Q = 10-P and the cost function given as C(Q) = 20. This information can be graphically illustrated as follows: CUT Bookshop AR= D Marginal cost 25 30 Price elasticity of demand -3.6 -3.6 Marginal Cost (MC) (6) Q With the aid of calculations, explain how this firm can use two-part pricing to extract all consumer surplus from the consumers. What will be the size of profit for a firm that is practicing two-part pricing? 2.2.2 Give two real-life examples where two-part pricing is applied. 2.2.3 With the aid of calculations, explain how this firm can use block pricing to extract all consumer surplus. What will be the size of profit for a firm that is practicing block pricing? (4) (2) €