Premium Essay

1-b Marginal cost means the cost added for each added customer=q

Fixed cost is the cost charged no matter how many customers take the ride=4000

1-c-1

Patrons in group B are more sensitive to price change than group A.

Example: Cloth industry. Some shoppers such as model or movie star need product for their career. Therefore, they will buy more products if the price gets lower because they can cut down their cost. On the other hand, some people just buy clothes when they need it. Therefore, they will consider price less because they buy clothes occasionally.

1-C-2

Ra=P x Q = (26-q)/4 x q

Rb=P x Q =(9-q)*q=9q-q^2

MRa= 13/2-qa/2

MRb= 9-2qb

MC=1

Therefore,

13/2-qa/2=1 qa=11

9-2qb=1 qb=4

Pa=3.75, Pb=5

Therefore, the price for Group A is 3.75 and the q is 11. The price for Group B is 5 and the q is 4.

Profit=profit A + profit B= 100(41.25-11)+100(20-4)-1=4000=625

2-1

P = 4, 500 − 0.15Q

R=P*Q=4500Q-0.15Q^2

MR=dR/dQ=4500-0.3Q

MC=1500

When MC=MR, there will come up a best value of Q.

4500-0.3Q=1500

Q=10000

P=3000

2-2-1

New monthly demand curve: Pnew = 3900 − 0.15Qnew

2-2-2

if Apple stick to the price

P=Pnew, 4500-0.15Q=3900-0.15Qnew

Q-Qnew=4000

2-2-3

R=Pnew x Qnew=3900Qnew-0.15Qnew^2

MC=1350

3900-0.3Qnew=1350

Qnew=8500

P=3900-0.15x8500=2625

2-3

If Apple use the optimal price of 1994 (P=3000), then the expected Q will be (3900-3000)/0.15=6000

Therefore, the revenue will be R= P*Q=18000000, Profit = P*Q-1350*Q=9900000

If Apple use the optimal price of 1995 (P=2625), then the expected Q will be (3900-2625)/0.15=8500

Therefore, the revenue will be R= P*Q=22312500

Profit = P*Q-1350*Q=10837500 > 9900000

Therefore, Apple should lower its price to get the most profit. However, the lower price strategy will make apple a cheap brand, which make the brand not luxury and unique at all. Therefore, I will