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
Working of IFC: The IBRD loans are available only to member-country governments or with the guarantee of member-country governments. Further, IBRD can only make a loan but it

If one person can produce 1 fish and 10 oranges per hour and works 5 hours a day.another person can produce 2 fish and 20 oranges per 2 hors and works 8 hurs a day then who has the

If Coolest IceCream ice cream parlor has been closing at 5pm with $120 of marginal revenue and $80 of marginal cost for the last hour open, what should Coolest IceCream do to maxim

graphical illustration describing the influence of an increase in immigrants on the market supply of labour

Pure Monopoly: Pure monopoly examined the market structure that is generally regarded as the polar opposite of perfect competition – i.e. the monopoly model. Like the perfect

what are criteria and conditions for pareto optimacy

COBWEB MODEL: Concept of dynamic stability: A market equilibrium is said to dynamically stable only when disequilibrium price and quantity move and over time reach to any eq

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

use a graphical illustration to describe briefly what the influence of each of the following be on the market supply of labour,(a) an increase in immigrants, (b) a reduction in wag

Janet decides to play a game with her children, Jay and Jill (who are fraternal twins) and Mo. Each child is in their own room and cannot communicate with each other. Suppose Jill