Demand function, Microeconomics

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.

 

Posted Date: 2/21/2013 5:12:48 AM | Location : United States







Related Discussions:- Demand function, Assignment Help, Ask Question on Demand function, Get Answer, Expert's Help, Demand function Discussions

Write discussion on Demand function
Your posts are moderated
Related Questions
The income elasticity of demand calculates the responsiveness of the quantity demanded of a commodity to changes in consumers' incomes.  This is typically calculated by replacing t

when does price and output determined in the unregulated monopoly

what is Scitovsky Contour ?

THEORY OF INTER-TEMPORAL CONSUMPTION: In the previous two units, we have been concerned with choices among contemporaneous commodities. An important class of choices made by c

unemployment is voluntary, discuss in view of the classical economists and the keynesian

Sources of external economies of scale: Economies of Skilled Labour: This involves upgrading the skills of labour through the provision of education and training faci

Neutrality: Bureaucracy is apolitical and neutral. Prof. Frocderich mentions the following features of bureaucracy: (i) differentiation of functions, (ii) qualifications for o

"Dr. Arata Kochi, the World Health Organisation malaria chief,... [says that] eradication is counterproductive. With enough money, he said, current tools like nets, medicines and D

Q. What do you meant by Enclosures? Enclosures: A historic process in Britain and other European countries, in very early years of capitalism, in that lands formerly held and u

Ask question #Minimum 100 words accepteFill out this National Council on Economic Education worksheet: Technology and Monopolies (Links to an external site.) Now, pretend that you