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a) Suppose that Coke currently sells Q bottles of Coke per day in Toronto. It current charges $1.50 per bottle. If it lowers price by 10 cents to $1.40 on every bottle than it expects to sell 100,000 additional bottles per day.
(i) Calculate marginal revenue as a function of Q.
(ii) If marginal cost is constant and equal to $0.40 per bottle then calculate for what levels of Q a price cut increases profits.
b) Bob is a monopolist who charges P = $60. At the current level of output MC = AC = $42. Bob estimates that a 2% change in price will cause a 5% change in quantity demanded.
(i) Calculate elasticity and marginal revenue
(ii) Is Bob maximizing profits? If not then should Bob increase or decrease price to increase profits? Explain.
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Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. Due to increase in the preference for light beer drinkers, Chris Prangel wants to introduce light beer version in Mountain Man. An analysis into the la..
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