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

Effect of gasoline tax with rebate, Effect of Gasoline Tax with Rebate ...

Effect of Gasoline Tax with Rebate Assume -Income = $9,000 - Price of gasoline = $1

Joy Land Toys, I need help with a question that has been posted on here alr...

I need help with a question that has been posted on here already.

Participation in global system of production, Participation in Global Syste...

Participation in Global System of Production: As national economies are getting more inter-linked, the share of foreign components in most manufactured products is progressiv

Expected utility - consumer choice involving risk, Expected Utility: T...

Expected Utility: Theory Assume that a utility index exists which conforms to the five axioms. The expected utility for the two-outcome lottery L = (P, A, B) is given by,

Growth of production, GROWTH OF PRODUCTION: The performance of Indian ...

GROWTH OF PRODUCTION: The performance of Indian agriculture during more than half a century of planned economic development can be broadly characterised by three distinct phas

Criteria for acceptability, The goal is to replicate a real life product de...

The goal is to replicate a real life product development and familiarize students with the invent process of a system, component, or process to meet desired wants within realistic

When does deadweight loss occur to society, When does deadweight loss occur...

When does deadweight loss occur to society? Applying consumer and producer surplus the efficiency costs of a tax: A tax causes a deadweight loss to society, since less the g

Rational producer, In the context of managerial economics how do you explai...

In the context of managerial economics how do you explain a rational producer. Illustrate giving example covering different dimention.

Mercantilism, Mercantilism:It is an economic theory from pre-capitalist tim...

Mercantilism:It is an economic theory from pre-capitalist times which held that a country's prosperity depended on its ability to produce large and persistent surpluses in its fore

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