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

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,

Evironmental issues and elasticity, looking for information to complete ess...

looking for information to complete essay, info looking for What is elasticity and its calculations for the price of a lap top, that increases by 20% and there is a 40% drop in qua

Engel curves, Engel Curves -Engel curves relate quantity of good consum...

Engel Curves -Engel curves relate quantity of good consumed to income. -If good is a normal good, Engel curve is sloping upward. -If good is an inferior good, the Engel c

Demand, demand elasticity

demand elasticity

Calculate income elasticity of demand, When Alex's income increased from $3...

When Alex's income increased from $3,000 to $5,000, he increased his consumption of bagels from 4 to 8 a month and decreased his consumption of donuts from 12 to 6 a month. Calcula

What is the difference between concept and assumption, What is the differen...

What is the difference between 'concept' and 'assumption'?  These two terms are very dissimilar. The term 'concept' refers to an idea or abstract principle. For instances, forc

Government expenditure equilibrium level of national income, Government Spe...

Government Spending Wagner's Law of economic activities applies to every economy. According to this law, there is both an extensive and intensive increase in government activit

Economics, Calculate point elasticity of demand for demand function Q=10-2p...

Calculate point elasticity of demand for demand function Q=10-2p for decrease in price from Rs 3 to Rs 2

Money and banking., excess reserve make a bank less vulnerable to runs.why

excess reserve make a bank less vulnerable to runs.why

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