Suppose a typical consumer's inverse demand function for bottled water per week at a resort area...

 

Transcribed Image Text:

Suppose a typical consumer's inverse demand function for bottled water per week at a resort area where one firm owns all the rights to a local spring is given by: P = $18-Q Assume you have no fixed costs. From your production department, you are told that the variable costs of bottling the spring water are given by: VC (Q) = Q² a. If you decide to offer the bottled water for sale to all buyers at a single price, what price will you charge and how much will you sell to a typical resort quest each week? b. What profits per consumer will the firm earn under this pricing strategy? c. Now suppose you decide to use a simple block pricing strategy whereby you offer your bottled water as a single package of a predetermined number of bottles. How much will you sell to a typical resort guest? (Hint: What is the optimal bundle size?) d. What price per resort guest will you charge under this pricing strategy (extracting the total value to the consumer)? e. Compare the profits under the two pricing strategies. Comment on the comparison. Suppose a typical consumer's inverse demand function for bottled water per week at a resort area where one firm owns all the rights to a local spring is given by: P = $18-Q Assume you have no fixed costs. From your production department, you are told that the variable costs of bottling the spring water are given by: VC (Q) = Q² a. If you decide to offer the bottled water for sale to all buyers at a single price, what price will you charge and how much will you sell to a typical resort quest each week? b. What profits per consumer will the firm earn under this pricing strategy? c. Now suppose you decide to use a simple block pricing strategy whereby you offer your bottled water as a single package of a predetermined number of bottles. How much will you sell to a typical resort guest? (Hint: What is the optimal bundle size?) d. What price per resort guest will you charge under this pricing strategy (extracting the total value to the consumer)? e. Compare the profits under the two pricing strategies. Comment on the comparison.

Answer rating: 100% (QA)

a P 18 Q VC Q Q 2 P MC 18 Q Q 2 Q 2 Q 18 0 Q 1 sq rt 1 72 2 Q 8 485 281 P 18 8 485 281 P 9 ... View the full answer