Economics Homework Help

Question1

1. Imagine that you are advising a small new car dealership. They ask:

A) given the information below, what is the best price they should put on all the cars, assuming every buyer pays the same price and how much profit will they make?

B) is there a better way to make profits and how much profit could they make? why might this strategy be difficult to use? The firm can’t change their costs. But they could use a different pricing scheme, not charging every customer the same price.

Fixed cost for business is $4000

Variable cost is $20,000 for each car they get from the manufacturer.

They anticipate the following customers.

Ms. Rich would pay up to $30,000

Mr. Upper Middle would pay up to $26,000

Ms. Middle would pay up to $22,000

Mr. Lower Middle would pay up to $18,000

Ms. Poor would pay up to $16,000

Question 2

Complete a table for Q, Price, TC, MC, MR and profits.

Start the price at the number of letters in your first and last names combined for Q = 1, and then reduce the price as Q increases. (You are price-making monopoly)

For costs, begin with TC = 6 at Q = 1, then you may use any numbers you like for costs. You may need to play around with the numbers to make this work out.

Show that MR = MC at profit maximization.