Deck 11: Topics in Pricing and Profit Analysis

Question 1

Where there is no external market for a transfer product, the profit maximizing condition for transfer product firms is MR_F = MC_F + MC_T.

Answer 1

True

Question 2

A firm produces two products, "f" and "g", and the production process is such that one unit of f is always obtained with one unit of "g". If the demand curves for "f" and "g" are estimated to be: Q_f = 300 - P_f so that MR_f = 300 - 2Q_f) and Q_g = 400 - 2P_g so that MR_g = 200 - Q_g) and the marginal cost of production is MC = 50 + 3Q_j, where Q_j consists of one unit of each product, the firm will maximize profits if it sells 100 units of "f" and 100 units of "j".

Answer 2

False

Question 3

Where there is a perfectly competitive external market for a transfer product, and the final product division maximizes profit at a lower output level than that of the transfer product division, the transfer products division should force the final products division to sell the additional units of final product that would be needed to absorb the amount of output that the transfer product division is producing.

Answer 3

False

Question 4

Markup on price is the proportion of the cost of goods sold that represents an amount added to that figure to arrive at the selling price.

Question 5

Where there is a perfectly competitive external market for a transfer product, and the final product division maximizes profit at a lower output level than that of the transfer product division, the transfer products division should sell the quantity Q_T - Q_F of the transfer product in the external market at the prevailing market price.

Question 6

Second-degree price discrimination is the practice of charging successively lower prices for block type increases in quantity purchased.

Question 7

Price discrimination allows different prices for the same product in different markets.

Question 8

Markup on cost is the proportion of the selling price that represents an amount added to the cost of goods sold.

Question 9

In the case of joint products produced in fixed proportions, each increment of output, Q, consists of a different ratio of the jointly produced products.

Question 10

In the case of joint products produced in fixed proportions, each increment of output, Q, consists of a certain amount of each jointly produced product.

Question 11

Where there is a perfectly competitive external market for a transfer product, the profit-maximizing condition for the transfer product division is met at MR_T = P_T = MC_T.

Question 12

A firm produces two products, "r" and "s", and the production process is such that one unit of "r" is always obtained with one unit of "s". If the demand curves for "r" and "s" are estimated to be: Q_r = 75 - P_r so that MR_r = 75 - 2Q_r) and Q_s = 100 - .5P_s so that MR_s = 200 - 4Q_s) and the marginal cost of production is MC = 75 + 4Q_j, where Q_j consists of one unit of each product, the firm will maximize profits if it sells 20 units of "r" and 20 units if "j".

Question 13

Where there is no external market for a transfer product, the profit maximizing condition for transfer product firms is MR_F = MC_F - MC_T.

Question 14

In order to practice third-degree price discrimination, the price elasticities of demand must be different in the various market segments.

Question 15

In a joint product problem with products produced in fixed proportions, profit would be maximized where MR_A + MR_B = MC, provided that neither MR_A nor MR_B is negative.

Question 16

Markup pricing is a pricing technique whereby a certain percentage of cost of goods sold or of price is added to the cost of goods sold in order to obtain the market price.

Question 17

First-degree price discrimination is a theoretical concept that refers to charging a different amount, specifically the maximum amount that a consumer is willing and able to pay, for each unit purchased.

Question 18

Where there is a perfectly competitive external market for a transfer product, the final product division should not pay the transfer product division a price in excess of that at which the transfer product can be obtained from outside suppliers.

Question 19

In a joint product problem with products produced in fixed proportions, profit would be maximized where MR_A = MR_B = MC, provided that the total of MR_A and MR_B is positive.

Question 20

Third-degree price discrimination is the practice of dividing groups of purchasers into separate markets and charging different prices in each market.

Question 21

When a firm is practicing price discrimination in two markets, the profit maximizing condition is met at MR_A + MR_B = SMC.

Question 22

Use the following information to answer Questions 7, 8 and 9
A company that produces diet supplements that uses a highly automated packaging process has the following production and revenue alternatives for three products A, B, and C) that are feasible to produce with existing plant and equipment. Total revenue is in thousands of dollars per month. Total cost for the first shift is $200,000 per month - of which $120,000 is labor, $60,000 is other variable costs, and $20,000 is fixed cost. As the number of shifts is increased, fixed cost remains at $20,000 per month while variable costs other than labor remain the same per shift. For the second shift, labor must be paid 1.2 times the amount paid on the first shift. For the third shift, labor must be paid 1.4 times what it receives in the first shift.
What is the total monthly cost if the firm uses three shifts?

A) $168,000
B) $248,000
C) $280,000
D) $332,000
E) $632,000

Question 23

Use the following information for Questions 10, 11 and 12
A company that produces breakfast cereal using a highly automated packaging process has the following production and revenue alternatives for three products A, B, and C) that are feasible to produce with existing plant and equipment. Total revenue is in thousands of dollars per month. Total cost for the first shift is $90,000 per month - of which $60,000 is labor, $20,000 is other variable costs, and $10,000 is fixed cost. As the number of shifts is increased, fixed cost remains at $20,000 per month while variable costs other than labor remain the same per shift. For the second shift, labor must be paid 1.3 times the amount paid on the first shift. For the third shift, labor must be paid 1.5 times what it receives in the first shift.
Profit will be maximized at which of the following product combinations and number of shifts?

A) one shift producing 100% of A
B) two shifts producing 25% of A and 75% of B
C) two shifts producing 50% of A and 50% of B
D) three shift producing 75% of A and 25% of B
E) three shifts producing 100% of B

Question 24

Use the following information to answer Questions 7, 8 and 9
A company that produces diet supplements that uses a highly automated packaging process has the following production and revenue alternatives for three products A, B, and C) that are feasible to produce with existing plant and equipment. Total revenue is in thousands of dollars per month. Total cost for the first shift is $200,000 per month - of which $120,000 is labor, $60,000 is other variable costs, and $20,000 is fixed cost. As the number of shifts is increased, fixed cost remains at $20,000 per month while variable costs other than labor remain the same per shift. For the second shift, labor must be paid 1.2 times the amount paid on the first shift. For the third shift, labor must be paid 1.4 times what it receives in the first shift.
Profit will be maximized at which of the following product combinations and number of shifts?

A) one shift producing 100% of A
B) one shift producing 25% of A and 75% of B
C) two shifts producing 50% of A and 50% of B
D) two shift producing 75% of A and 25% of B
E) two shifts producing 100% of B

Question 25

Two-part pricing is a strategy that divides the amount a consumer pays for a good or service into an access fee and a price per unit.

Question 26

The decision rule for maximizing profits for joint products is:

A) produce where the sum of marginal revenues for both products is equal to the total marginal costs
B) produce where the sum of marginal revenues for both products is greater than the total marginal costs
C) produce where the sum of marginal revenues for both products is less than the total marginal costs
D) produce where the sum of marginal revenues for both products is equal to the total marginal costs provided that the marginal revenue of neither joint product is negative
E) produce where the sum of marginal revenues for both products is equal to the total marginal costs provided that the marginal revenue of both joint products is not negative

Question 27

A firm produces two products, x and y, and the production process is such that one unit of x is always obtained with one unit of y. If the demand for x and y are estimated to be:
Q_x = 100 - P_x so that MR_x = 100 - 2Q_x)
Q_y = 220 - P_y so that MR_y = 220 - 2Q_y)
And the marginal cost of production is MC = 50 + .5Q_j, where Q_j consists of one unit of each product, how much of product x should the firm sell in order to maximize profit?

A) 30
B) 40
C) 50
D) 60
E) 70

Question 28

Tracey Biogenetics, Inc purchases anti-snoring devices from a manufacturer in China and distributes them to retail stores throughout the United States. Tracey's management has estimated that within the range of feasible prices for the devices, the elasticity of demand of the retail stores is -2.0. If Tracey can obtain any quantity of devices from the manufacturer for a fixed price of $8, what price should it charge for its anti-snoring devices?

A) $6.00
B) $16.00
C) $26.00
D) $36.00
E) $46.00

Question 29

Bundling is a pricing strategy whose principal characteristic is that it offers a buyer a package consisting of two or more goods that is more attractive than the alternative of buying the goods separately.

Question 30

When a firm is practicing price discrimination in two markets, the profit maximizing condition is met at MR_A = MR_B = SMC.

Question 31

Where there is no external market for a transfer product, the profit maximizing condition for a transfer product firm is:

A) MR_F = MC_F - MC_T
B) MR_F = MC_F + MC_T
C) MR_A + MR_B = SMC.
D) MR_A - MR_B = SMC.
E) MR_F = MC_F = MC_T

Question 32

Tracey Biogenetics, Inc purchases anti-snoring devices from a manufacturer in China and distributes them to retail stores throughout the United States. Tracey's management has estimated that within the range of feasible prices for the devices, the elasticity of demand of the retail stores is -2.0. If Tracey can obtain any quantity of devices from the manufacturer for a fixed price of $8, what will be its profit-maximizing markup percentage?

A) 25%
B) 50%
C) 75%
D) 100%
E) 125%

Question 33

Use the following information for Questions 10, 11 and 12
A company that produces breakfast cereal using a highly automated packaging process has the following production and revenue alternatives for three products A, B, and C) that are feasible to produce with existing plant and equipment. Total revenue is in thousands of dollars per month. Total cost for the first shift is $90,000 per month - of which $60,000 is labor, $20,000 is other variable costs, and $10,000 is fixed cost. As the number of shifts is increased, fixed cost remains at $20,000 per month while variable costs other than labor remain the same per shift. For the second shift, labor must be paid 1.3 times the amount paid on the first shift. For the third shift, labor must be paid 1.5 times what it receives in the first shift.
What is the monthly total cost if the firm uses two shifts?

A) $108,000
B) $128,000
C) $168,000
D) $188,000
E) $208,000

Question 34

Use the following information for Questions 10, 11 and 12
A company that produces breakfast cereal using a highly automated packaging process has the following production and revenue alternatives for three products A, B, and C) that are feasible to produce with existing plant and equipment. Total revenue is in thousands of dollars per month. Total cost for the first shift is $90,000 per month - of which $60,000 is labor, $20,000 is other variable costs, and $10,000 is fixed cost. As the number of shifts is increased, fixed cost remains at $20,000 per month while variable costs other than labor remain the same per shift. For the second shift, labor must be paid 1.3 times the amount paid on the first shift. For the third shift, labor must be paid 1.5 times what it receives in the first shift.
What is the total monthly cost if the firm uses three shifts?

A) $138,000
B) $185,000
C) $215,000
D) $298,000
E) $365,000

Question 35

In order to practice third-degree price discrimination, the market segments must be kept apart.

Question 36

The pricing technique whereby a certain percentage of cost of goods sold or of price is added to the cost of goods sold in order to obtain the market price is called:

A) price discrimination
B) transfer pricing
C) market segmentation
D) retail pricing
E) markup pricing

Question 37

When a firm is practicing price discrimination in two markets, the profit maximizing condition is met when marginal cost is equal to marginal revenue in both markets.

Question 38

A firm produces two products, "r" and "s", and the production process is such that one unit of "r" is always obtained with one unit of "s". If the demand curves for "r" and "s" are estimated to be:
Q_r = 75 - P_r so that MR_r = 75 - 2Q_r)
Q_s = 100 - .5P_s so that MR_s = 200 - 4Q_s)
And the marginal cost of production is MC = 75 + 4Q_j, where Q_j consists of one unit of each product, how much of product "r" and product "s" should the firm sell to maximize profit?

A) 10
B) 20
C) 30
D) 40
E) 50

Question 39

Use the following information for Questions 14 and 15
QC Electronics produces small, hand-held calculators. The final product division of the company manufactures all parts of the calculator except the display unit, and then assembles, packages and distributes the product. The display units of the calculators are produced by a separate division of the firm called View Displays.
View Displays could sell the display units in the open market to a number of other manufacturers at a standard price of $.25. There is vigorous competition in the display unit industry and it is unlikely that any but the going price can be obtained.
Management has determined that the demand curve for quantity sold per month of the hand-held calculators is:
Q_c = 12,500 - 2000P_c, so that MR_c = 6.25 - .001Q_c)
while QC's marginal cost for hand-held calculators, excluding the cost of the display module is:
MC_c = .005Q_c
In addition, management has determined that the marginal cost for the display modules is:
MC_d = .0005Q_d
The firm will maximize profit at what quantity?

A) 250
B) 500
C) 750
D) 1000
E) 1250

Question 40

Use the following information to answer Questions 7, 8 and 9
A company that produces diet supplements that uses a highly automated packaging process has the following production and revenue alternatives for three products A, B, and C) that are feasible to produce with existing plant and equipment. Total revenue is in thousands of dollars per month. Total cost for the first shift is $200,000 per month - of which $120,000 is labor, $60,000 is other variable costs, and $20,000 is fixed cost. As the number of shifts is increased, fixed cost remains at $20,000 per month while variable costs other than labor remain the same per shift. For the second shift, labor must be paid 1.2 times the amount paid on the first shift. For the third shift, labor must be paid 1.4 times what it receives in the first shift.
What is the total monthly cost if the firm uses two shifts?

A) $144,000
B) $200,000
C) $240,000
D) $344,000
E) $404,000

Question 41

Joe "Mr. Clean" Smith is planning to start a new service for his car wash company. Previously, everyone who wanted his or her car washed had to come to Joe's business, Mr. Clean Car Wash. He and his staff have decided that there is a substantial market for people who would want to have their car washed at their home. After considerable market research the following daily demand equations have been determined.
Car washes done at Mr. Clean:
Q_c = 550 - 25P_c, so that MR_c = 22 -.08Q_c
Car washes done at home:
Q_h = 95 - 2.5P_h, so that MR_h = 38 - .8Q_h,
Q_c = the number of car washes per day done at Mr. Clean
Q_h = the number of cars washes done at people's homes.
MC = $6.00 for both in-house and at-home car washes and is constant
How many car washes must be sold at Mr. Clean and at-home in order to maximize profit?

A) Mr. Clean = 100, At Home = 20
B) Mr. Clean = 100, At Home = 40
C) Mr. Clean = 200, At Home = 20
D) Mr. Clean = 200, At Home = 40
E) Mr. Clean = 300, At Home = 60

Question 42

A company that produces breakfast cereal using a highly automated packaging process has the following production and revenue alternatives for three products A, B, and C) that are feasible to produce with existing plant and equipment:

TR is in thousands of dollars per month. Total cost for the first shift is $90,000 per month - of which $60,000 is labor, $20,000 is other variable costs, and $10,000 is fixed cost. As the number of shifts is increased, fixed cost remains at $20,000 per month while variable costs other than labor remain the same per shift. For the second shift, labor must be paid 1.3 times the amount paid on the first shift. For the third shift, labor must be paid 1.5 times what it receives in the first shift.
a. Determine total cost for the two-shift and three-shift alternatives.
b. Indicate the product combination and shift level that maximizes profit.

Question 43

Where there is a perfectly competitive external market for a transfer product, the final product division should pay the transfer product division a price:

A) in excess of that at which the transfer product can be obtained from outside suppliers.
B) that is the prevailing, perfectly competitive, external market price.
C) that is less than the transfer product division can obtain in the external market.
D) equal to the marginal cost of the transfer division at the output level where the final product division maximizes profit.
E) equal to the marginal cost of the final product division at the output level where the transfer product division maximizes profit.

Question 44

A firm produces two products, x and y, and the production process is such that one unit of x is always obtained with one unit of y. If the demand curves for x and y are estimated to be:
Q_x = 85 - P_x so that MR_x = 85 - 2Q_x)
Q_y = 110 - P_y so that MR_y = 110 - 2Q_y)
and the marginal cost of production is MC = 25 + .25Q_j, where Q_j consists of one unit of each product, how much of product x and product y should the firm sell in order to maximize profit?

Question 45

Price discrimination is permitted when it can be justified under each of the following basis EXCEPT:

A) differences in grade or quality sold.
B) differences in transportation costs.
C) lowering of price in good faith to meet competition.
D) products that will be resold to another intermediate purchaser or to the final consumer.
E) differences in quantity sold.

Question 46

The separation of buyers into distinct markets characterized by different prices is:

A) illegal in almost all cases in the United States.
B) legal under almost all circumstances in the United States.
C) prohibited when it applies to sales to the final consumer.
D) allowed when the product will be resold.
E) none of the above a through d) are correct.

Question 47

All of the following are examples of two-part pricing EXCEPT:

A) Telephone services that impose a fixed monthly fee to have a phone plus an additional charge per time unit of phone use.
B) Cellular services that impose a fixed monthly fee to have a cellular phone plus an additional charge per time unit of cellular phone use.
C) Golf courses that charge a membership fee plus a green fee per unit of use.
D) Amusement parks that charge an entry fee plus an additional fee for using each ride or attraction.
E) A garbage fee, charged by your municipal trash service that is attached to your monthly utility bill that you pay even if you don't put out any trash.

Question 48

A firm produces two products, x and y, and the production process is such that one unit of x is always obtained with one unit of y. If the demand for x and y are estimated to be:
Q_x = 100 - P_x so that MR_x = 100 - 2Q_x)
Q_y = 220 - P_y so that MR_y = 220 - 2Q_y)
and the marginal cost of production is MC = 50 + .5Q_j, where Q_j consists of one unit of each product, how much of product x and product y should the firm sell in order to maximize profit?

Question 49

A firm produces two products, "r" and "s", and the production process is such that one unit of "r" is always obtained with one unit of "s". If the demand curves for r and s are estimated to be:
Q_r = 75 - P_r so that MR_r = 75 - 2Q_r)
Q_s = 100 - .5P_s so that MR_s = 200 - 4Q_s)
and the marginal cost of production is MC = 75 + 4Q_j, where Q_j consists of one unit of each product, how much of product "r" and product "s" should the firm sell to maximize profit?

Question 50

When a firm is practicing price discrimination in two markets, the profit maximizing condition is met at:

A) MR_F = MC_F + MC_T
B) MR_F = MC_F - MC_T
C) MR_A = MR_B = SMC.
D) MR_A + MR_B = SMC.
E) MR_A - MR_B = SMC.

Question 51

Use the following information for Questions 14 and 15
QC Electronics produces small, hand-held calculators. The final product division of the company manufactures all parts of the calculator except the display unit, and then assembles, packages and distributes the product. The display units of the calculators are produced by a separate division of the firm called View Displays.
View Displays could sell the display units in the open market to a number of other manufacturers at a standard price of $.25. There is vigorous competition in the display unit industry and it is unlikely that any but the going price can be obtained.
Management has determined that the demand curve for quantity sold per month of the hand-held calculators is:
Q_c = 12,500 - 2000P_c, so that MR_c = 6.25 - .001Q_c)
while QC's marginal cost for hand-held calculators, excluding the cost of the display module is:
MC_c = .005Q_c
In addition, management has determined that the marginal cost for the display modules is:
MC_d = .0005Q_d
The firm will maximize profit at what price?

A) $5.25
B) $5.75
C) $6.25
D) $6.75
E) $7.75

Question 52

Two-part pricing is a pricing strategy:

A) where the consumer pays an access fee and a price per unit of a good or service and is very rarely practiced
B) that divides the amount a consumer pays for a good or service into an access fee and a price per unit.
C) offers a package deal to consumers on the purchase of two or more products.
D) whose principal characteristic is that it offers a buyer a package consisting of two or more goods that is more attractive than the alternative of buying the goods separately.
E) whose principal characteristic is that it forces the buyer to purchase a package consisting of two or more goods that is often far less attractive, and more costly, than the alternative of buying the goods separately.

Question 53

A company that produces diet supplements using a highly automated packaging process has the following production and revenue alternatives for three products A, B, and C) that are feasible to produce with existing plant and equipment:

TR is in thousands of dollars per month. Total cost for the first shift is $200,000 per month - of which $120,000 is labor, $60,000 is other variable costs, and $20,000 is fixed cost. As the number of shifts is increased, fixed cost remains at $20,000 per month while variable costs other than labor remain the same per shift. For the second shift, labor must be paid 1.2 times the amount paid on the first shift. For the third shift, labor must be paid 1.4 times what it receives in the first shift.
a. Determine total cost for the two-shift and three-shift alternatives.
b. Indicate the product combination and shift level that maximizes profit.

Question 54

Academia Nuts, Inc is an indoor play area designed especially for academicians to work off some off the frustrations of having to deal with academic bureaucracies. You can come and smash a car with sledge hammers, dunk people who look like ivory tower intellectuals into vats of water and perform other activities useful in achieving Nirvana. Management estimates that the typical customer who likes to destroy things enough to want a membership card has an annual demand curve represented by the equation
Q = 50 - .25P
P = the price charged per visit
Q = the number of times per year a person will visit.
MC = $80.00 Based on the foregoing demand curve, to maximize profit contribution, what should be the price of the annual membership card?

A) $500
B) $800
C) $1300
D) $1800
E) $2500

Question 55

Air Comfort Electronics produces small, electric, Victorian-reproduction fans for home and office use. The final product division of the company manufactures all parts of the fan except the electric motor, and then assembles, packages and distributes the product. The fan motors are produced by a separate division of the firm called Westside Armature Works.
Westside could sell the motors in the open market to a number of other fan and appliance manufacturers at a standard price of $2.50. There is vigorous competition in the electric motor industry and it is unlikely that, for the size and type motor needed for the fan, any but the going price can be obtained.
Management has determined that the demand curve in quantity sold per month for its most popular model, the Casa-Frio model is:
Q_c = 8,250 - 100P_c, so that MR_c = 82.5 - .02Q_c)
while Air Comfort's marginal cost for the Casa-Frio fan, excluding the cost of the display module is:
MC_c = .003_c
In addition, management has determined that the marginal cost for the electric motors is:
MC_m = .0005Q_m
a. At what final product price and rate of output will the firm maximize profit?
b. How much of the transfer product should be produced?
c. Should the final product division obtain all of its motors for the fan from Westside Armature Works? Why or why not?

Question 56

QC Electronics produces small, hand-held calculators. The final product division of the company manufactures all parts of the calculator except the display unit, and then assembles, packages and distributes the product. The display units of the calculators are produced by a separate division of the firm called View Displays.
View Displays could sell the display units in the open market to a number of other manufacturers at a standard price of $.25. There is vigorous competition in the display unit industry and it is unlikely that any but the going price can be obtained.
Management has determined that the demand curve for quantity sold per month of the hand-held calculators is:
Q_c = 12,500 - 2000P_c, so that MR_c = 6.25 - .001Q_c)
while QC's marginal cost for hand-held calculators, excluding the cost of the display module is:
MC_c = .005Q_c
In addition, management has determined that the marginal cost for the display modules is:
MC_d = .0005Q_d
a. At what final product price and rate of output will the firm maximize profit?
b. How much of the transfer product should be produced?
c. Should the final product division obtain all of its display modules for the calculators from View Displays? Why or why not?

Question 57

Bundling is a pricing strategy:

A) where the consumer pays an access fee and a price per unit of a good or service and is very rarely practiced in the United States.
B) that divides the amount a consumer pays for a good or service into an access fee and a price per unit.
C) that offers a package deal to consumers on the purchase of five or more products.
D) whose principal characteristic is that it offers a buyer a package consisting of two or more goods that is more attractive than the alternative of buying the goods separately.
E) whose principal characteristic is that it forces the buyer to purchase a package consisting of two or more goods that is often far less attractive, and more costly, than the alternative of buying the goods separately.

Question 58

A firm produces two products, "f" and "g", and the production process is such that one unit of f is always obtained with one unit of "g". If the demand curves for "f" and "g" are estimated to be:
Q_f = 300 - P_f so that MR_f = 300 - 2Q_f)
Q_g = 400 - 2P_g so that MR_g = 200 - Q_g)
and the marginal cost of production is MC = 50 + 3Q_j, where Q_j consists of one unit of each product, how much of product "f" and product "g" should the firm sell to maximize profit?

Question 59

Jasper's is a home cleaning company that specializes in cleaning pet odors and other residual effects of pet ownership. Their primary customers consist of homeowners who own pets and do not want to let Fido's little "deposits" take over the house Type H) and/or yard Type Y). Both types of customers would purchase both services if they were attractively priced. The maximum amount each type of customer would pay per house and yard cleaning appear on the following table.
Where:
Jasper's is considering offering its services only as a bundle consisting of both house and yard cleaning. Given the preceding data, what price will the company charge to bundle?

A) $40
B) $60
C) $80
D) $100
E) $120

Question 60

Where there is a perfectly competitive external market for a transfer product, the profit maximizing condition for the transfer product division is:

A) MR_F = MC_F + MC_T
B) MR_F = MC_F - MC_T
C) MR_T = P_T = MC_T
D) MR_T = P_T + MC_T
E) MR_F = MC_F = MC_T

Question 61

Tracey Biogenetics, Inc purchases anti-snoring devices from a manufacturer in China and distributes them to retail stores throughout the United States. Tracey's management has estimated that within the range of feasible prices for the devices, the elasticity of demand of the retail stores is -2.0. If Tracey can obtain any quantity of devices from the manufacturer for a fixed price of $8, answer the following:
a. What will be its profit-maximizing markup percentage?
b. What price should it charge for its anti-snoring devices?

Question 62

Solis Technology, Inc purchases computer sound systems from a manufacturer in China and distributes them to retail stores throughout the United States. Solis's management has estimated that within the range of feasible prices for the drives, the elasticity of demand of the retail stores is -5.0. If Solis can obtain any quantity of drives from the manufacturer for a fixed price of $18, answer the following:
a. What will be its profit-maximizing markup percentage?
b. What price should it charge for its sound systems?

Question 63

Custom Hardwoods produces high quality paneling using a process that also produces large quantities of extremely high quality sawdust. For each pallet of paneling Custom produces one cubic yard of sawdust. The demand for the paneling is:
Q_p = 350 - P_p
The demand curve for the sawdust, which can be used in various other products, is;
Q_s = 25 - .25P_s
The total cost function for the two joint products is:
TC = 7500 + 2Q + 2Q²
a. How much of each product should Custom Hardwoods sell? note - fractional units of the sawdust are permitted.)
b. What price should be charged for each product?
c. Should Custom Hardwoods withhold any of either products from the market? If so, which one and how much?

Question 64

Joe "Mr. Clean" Smith is planning to start a new service for his car wash company. Previously, everyone who wanted their car washed had to come to Joe's business Mr. Clean Car Wash. He and his staff have decided that there is a substantial market for people who would want to have their car washed at their home. After considerable, and I might add free, market research performed by the Small Business Development Center of the University of Texas at San Antonio, the following daily demand equations have been determined.
The estimated demand for car washes done at Mr. Clean is given by the following equation:
Q_c = 550 - 25P_c, so that MR_c = 22 -.08Q_c
The estimated demand for car washes done at home is given by the following equation:
Q_h = 95 - 2.5P_h, so that MR_h = 38 - .8Q_h,
where Q_c is the number of car washes per day done at Mr. Clean and Q_h is the number of cars washes done at people's homes. Because he is only sending one person out to do the cars washes at home and he does not have to pay for water, Joe estimates that the marginal cost for both in-house and at-home car washes to the same and is constant at $6.00
a. Should the price for picked up in-house car wash be lower than the price for the at-home one?
b. How many car washes should be sold in each market to maximize profit?
c. What price or prices should be charged each type of customer?

Question 65

A firm produces two products, r and s, and the production process is such that one unit of r is always obtained with one unit of s. The demand curves for r and s are estimated to be:
Q_r = 75 - P_r
Q_s = 100 - .5P_s
and the marginal cost of production is MC = 75 + 4Q_j, where Q_j consists of one unit of each product.
a. How much of product r and product s should the firm sell to maximize profits?
b. At what price should these products sell?

Question 66

Academia Nuts, Inc is an indoor play area designed especially for academicians to work off some off the frustrations of having to deal with academic bureaucracies. You can come and smash a car with sledge hammers, dunk people who look like ivory tower intellectuals into vats of water and perform other activities useful in achieving Nirvana. There is no age limit, and management estimates that the typical customer who likes to things destroyed enough to want a membership card has an annual demand curve represented by the equation Q = 50 - .25P, where P is the price charged per visit and Q is the number of times per year a person will visit. As even really frustrated academicians are not strong enough to destroy too much and as most of the equipment is made of titanium steel, the Academia Nuts marginal cost per visit for any type of academician is only $80 The cars cost a lot and the insurance is really outrageous and based on customers through the door). Based on the foregoing demand curve, to maximize profit contribution, what should be a) the price of the annual membership card and b) the per-visit ticket price for a membership card holder?

Question 67

Jasper's is a home cleaning company that specializes in cleaning pet odors and other residual effects of pet ownership. Their primary customers consist of homeowners who own pets and do not want to let Fido's little "deposits" taking over the house Type H) and/or yard Type Y). Both types of customers would purchase both services if they were attractively priced. The maximum amount each type of customer would pay per house and yard cleaning appear on the following table.

Jasper's is considering offering its services only as a bundle consisting of both house and yard cleaning. Given the preceding data, what price would you advise the company to charge to the bundle?

Question 68

Alpha Electronics produces sophisticated business computers. Its subsidiary, HRD Drives, produces hard disks which Alpha uses in each computer. HRD operates in a competitive market; each disk sells for $120.00 on the open market. Management has determined that the demand curve for quantity sold per month of the computers is:
Q_c = 8,000 - .4P_c
while Alpha's marginal cost for the computers, excluding the cost of the disks is:
MC_c = 5Q_c
In addition, management has determined that the total cost function for the disks is:
TC_d = 18Q_d + .0075Q_d²
a. At what final product price and rate of output will the firm maximize profit?
b. How much of the transfer product should be produced?
c. Should the final product division obtain all of its disks for the computers from HRD Drives? Why or why not?

Question 69

The Bulverde Railroad runs a freight train daily between Brownsville and Bulverde. Two major customers use this service: Texas Spice Distributors and Bulverde Gypsum Company. The demand for freight cars is given by the following equations:
P_s = 500 - 8Q_s for Texas Spice Distributors, and
P_g = 400 - 5Q_g for Bulverde Gypsum Company.
P is the price charged by Bulverde Railroad for hauling one freight car of materials between Brownsville and Bulverde, and Q is the number of cars demanded by each user. Bulverde Railroad's total cost function is given by the following equation:
TC = 10,000 + 20Q
where Q is the total number of freight cars hauled on a particular trip. If Bulverde Railroad price discriminates:
a. What will be the quantity demanded by each customer?
b. What will be the prices charged each customer?
c. What will be the railroad's total profit?

Question 70

Zap Electronics produces advanced function, hand-held calculators. Its subsidiary, LQ Displays, produces display modules which Zap uses in each calculator. LQ operates in a competitive market; each display sells for $5.00 on the open market. Management has determined that the demand curve for quantity sold per month of the hand-held calculators is:
Q_c = 25,625 - 125P_c
while Zap's marginal cost for hand-held calculators, excluding the cost of the display module is:
MC_c = .004Q_c
In addition, management has determined that the total cost function for the display modules is:
TC_d = .5Q_d + .005Q_d²
a. At what final product price and rate of output will the firm maximize profit?
b. How much of the transfer product should be produced?
c. Should the final product division obtain all of its display modules for the calculators from LQ Displays? Why or why not?