Linear marginal revenue functions

Reference no: EM13801292

1. The Financial Herald, a weekly newspaper specializing in corporate financial news, is purchased by both business people and students. A marketing research firm has estimated the two linear marginal revenue functions to be:

MR_B = 120 - 0.04 Q_B

MR_S = 40 - 0.01 Q_S

where MR_B is the estimated marginal revenue for the business readers, and MR_S is the estimated marginal revenue for the student readers. The production department at The Herald estimates a linear marginal cost function for newspaper production, which is MC = 16 + 0.002Q.

a. The Herald should print a total of ___________ copies each week.

b. The Herald should sell ___________ copies to business readers and sell ___________ copies to students.

c. The Herald should charge business readers a price of $_______ and charge students a price of $________.

2. Marvel Cleaning Service, Inc. is a firm that specializes in cleaning business offices, and Marvel enjoys a monopoly position because it is the only firm allowed to provide cleaning service at the TechCenter industrial office park - the monopoly is believed to enhance security. There are 25 equal-sized offices in TechCenter, each one leased to a different company. TechCenter is closed 45 days a year (Sundays plus official federal holidays), which limits the demand for Marvel's cleaning services to a maximum of 320 cleanings per year for each one of the 25 companies leasing offices. Marvel believes it faces an identical demand by each one of the 25 businesses in TechCenter. This demand curve is shown below.

Marvel's costs are constant and equal to $30 per office cleaning.

1963_Owner of Marvel Cleaning Service.png

The owner of Marvel Cleaning Service is considering uniform pricing

a. If Marvel practices uniform pricing, it will charge ________ for an office cleaning and will face a quantity demanded from each of the 25 identical firms of __________ cleanings per year.

b. At TechCenter, Marvel's total profit per year is __________ (i.e., the sum of the profits from the 25 businesses in TechCenter). Each one of the businesses enjoys ____________ of consumer surplus under uniform pricing.

Reference no: EM13801292

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