Demand function, Microeconomics

Assignment Help:

The Acme Bakery in the seaside resort town of Malvino sells freshly baked bread to two categories of consumers: residents of the town and tourists. The weekly demand from tourists is given by the demand function:

QT =600-120P

for prices P between $0 and $5. (There is no demand at prices above $5 per loaf.) The weekly demand from local residents is:

QI =540-180P

for prices P between $0 and $3. (There is no demand from locals at prices above $3 per loaf.) The bakery's marginal cost is constant at $1.20 per loaf.

1.  Suppose the Acme Bakery could somehow set different prices for locals and for tourists. 

a)  What prices would it set for each group?
b)  What contribution margin would it earn from the two groups?

2.      a)  If Acme had to charge the same price to both locals and tourists, what price would it
set? Explain and show.
b) What would be the associated contribution margin?Explain

3.  The Acme Bakery has come to the Malvino Town Council with a request for a zoning variance that will permit it to sell bread at a new outlet located in the residential district of town. This will permit it to sell bread at the optimal price for tourists at its store on Main Street and sell bread at the optimal price for locals in this new outlet.

The geography of the town is such that no tourist could buy bread at the store intended for locals (assume they would be unable to find it, and locals will not tell them about it). Also assume thatno local would buy from the Main Street location unless the price is lower than that charged at the new outlet.

Acme's argument in favor of the requested variance is that it would promote the profits of local industry. As a member of the Town Council, you are concerned about the profits of the bakery - it makes generous contributions to your reelection campaign - but you also need votes, and so you are very concerned with the welfare of local customers. Should you favor this zoning variance? Explain and justify.

 


Related Discussions:- Demand function

Elasticity of market supply, Elasticity of Market Supply • Perfe...

Elasticity of Market Supply • Perfectly inelastic short run supply arises when industry's plant and equipment are so fully utilized that new plants should be built to ac

#title.inflation., inflation wide equality while deflation narrow it down d...

inflation wide equality while deflation narrow it down due in aggree distify we answer with algement?

Summary of education and economic development, Normal 0 false ...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Types of price discrimination, First Degree Price Discrimination - The mono...

First Degree Price Discrimination - The monopolist sells different units of the commodity at different prices which differ from person to person. Second Degree Price Discriminat

Problems of population census, Problems of population census: High ...

Problems of population census: High Cost of Census: Censuses are supposed to be conducted at a 10 year interval. The high cost of conducting census has made it impossibl

Duopoly, characteristic of duopoly

characteristic of duopoly

Currency unions and optimum, CURRENCY UNIONS AND OPTIMUM: This Section...

CURRENCY UNIONS AND OPTIMUM: This Section explains the working of monetary unions and common currency areas. The Section also examines the case for and against optimum currenc

#title, what is marginal costs?

what is marginal costs?

Discussion perfectly competitive firm, Explain why a perfectly competitive ...

Explain why a perfectly competitive firm does not expand its sales without limit if its horizontal demand curve indicates that it can sell as much as it desires at the current mark

A3, Consider the model of corruption explored by Shleifer and Vishni’s wher...

Consider the model of corruption explored by Shleifer and Vishni’s where there is one government-produced good X. There is a demand for that good described by the inverse demand eq

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd