Introduction To These Scenarios For Practice

Introductionthese Scenarios Will Give You Practice Applying Concepts F

These scenarios will give you practice applying concepts from the readings to models of real-world situations. Read the following scenarios and complete the corresponding questions. Please remember to answer in complete and grammatically correct sentences. Your responses should demonstrate your thought process clearly, showing your understanding of economic concepts and how they apply to the given situations.

Paper For Above instruction

Scenario 1: Pricing and Market Segmentation for Pharmaceuticals

In this scenario, the market for a pharmaceutical drug includes both domestic (U.S.) and foreign consumers. The marginal cost of producing the drug is constant at $5 per dose. The demand schedules are given with prices and quantities for both regions, with the demand in the U.S. and abroad specified. The questions involve determining the profit-maximizing price when the markets are combined vs. when they are separated, calculating marginal revenue in each case, and understanding the implications of setting uniform or differentiated prices.

Initially, when markets cannot be separated and the same price must be charged universally, the problem involves calculating the combined demand, identifying the corresponding marginal revenues, and establishing the price point that maximizes profit. When markets are separable, marginal revenue can be calculated separately, allowing for price discrimination. Setting different prices in each market can increase overall profit, as each market's willingness to pay is exploited. Determining the optimal prices in foreign and domestic markets separately involves analyzing their demand functions, marginal costs, and resulting marginal revenues, with the goal of setting prices that maximize combined profit.

Scenario 2: Product Line Differentiation in Apple's iPad

This scenario discusses Apple's strategy of maintaining older models alongside new versions of the iPad. Selling multiple versions at different price points exemplifies price discrimination, enabling Apple to capture consumer surplus across various market segments. Continuing to sell older models with lower specifications and prices helps Apple reach a broader audience, including cost-sensitive consumers who may not afford the latest model.

The shift from offering larger hard drives on top-tier models to limiting lower-tier models to only 16GB is a strategic price discrimination mechanism. It encourages consumers to pay more for higher storage and newer features, thereby segmenting the market based on willingness to pay. The introduction of the iPad mini, despite cannibalizing sales of larger models, is justified because it opens access to a new customer segment that might not have purchased a full-sized iPad, thus increasing overall sales volume and revenue. The estimated cannibalization ratio indicates that for every 4 million iPad minis sold, 1 million fewer full-sized iPads are sold, but the total market share expands, making the product line more attractive overall.

Scenario 3: Optimal Pricing and Volume Discounts

If the firm must set a single price to maximize profits, it needs to determine the price at which marginal revenue equals marginal cost ($2.50). The consumer's demand schedule indicates willingness to pay decreasing amounts for additional units. Calculating total revenue at different prices and comparing it to total costs guides the optimal single price point.

Applying a volume discount, where the price declines with each additional unit purchased, allows the firm to capture consumer surplus more effectively. To find the smallest per-unit price that still yields profit, the firm must ensure that total revenue exceeds total costs ($2.50 times total units). The profit-maximizing strategy involves setting prices at levels where the marginal revenue from each additional unit surpasses the marginal cost, with the volume discount ending just before the price falls below this threshold.

Scenario 4: Ticket Pricing and Ancillary Revenues for a Hockey Team

The team seeks the ticket price that maximizes revenue, considering demand and revenue from parking and concessions. With zero marginal costs on ticket sales, the focus is on identifying the ticket price that generates the highest total revenue from ticket sales, parking, and concessions. The demand schedule specifies the number of tickets sold at different prices.

By analyzing the demand schedule, the team can calculate revenue at each price point. Additionally, parking and concessions provide supplementary income: parking permits are purchased at a rate of one per four spectators, priced at $10, and each spectator spends an additional $5 on concessions. Incorporating these supplementary revenues into the total revenue calculation reveals an optimal ticket price that not only maximizes ticket sales but also maximizes overall profit from all sources.

References

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• Pindyck, R. S., & Rubinfeld, D. L. (2012). Microeconomics (8th ed.). Pearson.
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• Pashigian, P., & Stango, V. (2012). Price Discrimination and Product Line Strategies. Journal of Economic Perspectives, 26(1), 91–108.
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• Besanko, D., Dranove, D., Shanley, M., & Schaefer, S. (2013). Economics of Strategy (6th ed.). Wiley.