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
A country s choice among the production of education and nuclear submarines is an issue of opportunity cost. Explain the issue using a PPF. Resources are limited whereas

What is the theory of second best? Prove the theorem with the help of a diagram

RATIONAL EXPECTATIONS AND ECONOMIC THEORY : We assumed above that the role of economic theory is not to provide quantitative predictions about the future. Suppose we assume ins

# 1 Question: Consider a competitive market for Berries. The market demand for the berries is Qd=50-P (Qd is the quantity demanded (cartons) and P is the price in $. The market sup

crumble corporation produce biscuits. here the relation between the number of workers and output

Question : (a) Suppose Firm A is a perfectly competitive firm producing good X and faces the following average revenue and average cost Average Revenue: P = 10 Average Co

given short run total cost curve :10q^2+4q=100 and short run marginal cost MC=20q+4 and market demand Q=100-p what''s the equation of the short run supply curve?


Question 1: i) Elaborate on the different types of price discrimination that a monopolist may use and what are the required preconditions for its application? ii) What dete

Purchasing Power Parity (PPP): The exchange rate is determined by the relative purchasing power of currency withineach country.  For example, if a product X costs Rs. 100 in I