Market Structures and Pricing Decisions Applied Problems
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1:Market Structures and Pricing Decisions Applied Problems
Robert’s New Way Vacuum Cleaner Company is a newly started small business that produces vacuum cleaners and belongs to a monopolistically competitive market. Its
demand curve for the product is expressed as Q = 5000 – 25P where Q is the number of vacuum cleaners per year and P is in dollars. Cost estimation processes have
determined that the firm’s cost function is represented by TC = 1500 + 20Q + 0.02Q2.
What are the profit-maximizing price and output levels? Explain them and calculate algebraically for equilibrium P (price) and Q (output). Then, plot the MC (marginal
cost), D (demand), and MR (marginal revenue) curves graphically and illustrate the equilibrium point.
How much economic profit do you expect that Robert’s company will make in the first year?
Do you expect this economic profit level to continue in subsequent years? Why or why not?
Greener Grass Company (GGC) competes with its main rival, Better Lawns and Gardens (BLG), in the supply and installation of in-ground lawn watering systems in the
wealthy western suburbs of a major east-coast city. Last year, GGC’s price for the typical lawn system was $1,900 compared with BLG’s price of $2,100. GGC installed
9,960 systems, or about 60% of total sales and BLG installed the rest. (No doubt many additional systems were installed by do-it-yourself homeowners because the parts
are readily available at hardware stores.)
GGC has substantial excess capacity–it could easily install 25,000 systems annually, as it has all the necessary equipment and can easily hire and train installers.
Accordingly, GGC is considering expansion into the eastern suburbs, where the homeowners are less wealthy. In past years, both GGC and BLG have installed several
hundred systems in the eastern suburbs but generally their sales efforts are met with the response that the systems are too expensive. GGC has hired you to recommend a
pricing strategy for both the western and eastern suburb markets for this coming season. You have estimated two distinct demand functions, as follows:
Qw =2100 – 6.25Pgw + 3Pbw + 2100Ag – 1500Ab + 0.2Yw
for the western market and
Qe = 36620 – 25Pge + 7Pbe + 1180Ag – 950Ab + 0.085Ye
for the eastern market, where Q refers to the number of units sold; P refers to price level; A refers to advertising budgets of the firms (in millions); Y refers to
average disposable income levels of the potential customers; the subscripts w and e refer to the western and eastern markets, respectively; and the subscripts g and b
refer to GGC and BLG, respectively. GGC expects to spend $1.5 million (use Ag = 1.5) on advertising this coming year and expects BLG to spend $1.2 million (use Ab =
1.2) on advertising. The average household disposable income is $60,000 in the western suburbs and $30,000 in the eastern suburbs. GGC does not expect BLG to change
its price from last year because it has already distributed its glossy brochures (with the $2,100 price stated) in both suburbs, and its TV commercial has already been
produced. GGC’s cost structure has been estimated as TVC = 750Q + 0.005Q2, where Q represents single lawn watering systems.
Show all of your calculations and processes. Describe your answer for each item below in complete sentences, whenever it is necessary.
Derive the demand curves for GGC’s product in each market.
Derive GGC’s marginal revenue (MR) and marginal cost (MC) curves in each market. Show graphically GGC’s demand, MR, and MC curves for each market.
Derive algebraically the quantities that should be produced and sold, and the prices that should be charged, in each market.
Calculate the price elasticities of demand in each market and discuss these in relation to the prices to be charged in each market.
Add a short note to GGC management outlining any reservations and qualifications you may have concerning your price recommendations.
As the chief of police need to ensure that your law enforcement officers lead ethical careers. review Chapters 7 through 9 in the textbook. Research Kohlberg’s stages
of moral development and find at least two (2) relevant articles that discuss Kohlberg’s theory, Means vs. Ends, and Kantian ethics.
Write a two to three (2-3) page paper in which you:
1. Identify and discuss the three (3) levels of Kohlberg’s stages of Moral Development, and explain how you would address each level within your department.
2. Explain how your officers can use Kohlberg’s Stages of Moral Development to evaluate three (3) types of criminals who are at different stages of moral development.
3. Illustrate two to three (2-3) ways in which you would address self-interest and pursuit of pleasure to prevent police corruption.
4. Identify and discuss at least three (3) Prima Facie Duties that you believe all of your law enforcement officers should fulfill.
5. Support your position statement with two (2) relevant and credible references, documented according to latest edition of APA. (Note: Do not use open source sites
such as Ask.com, eHow.com, Answers.com, and Wikipedia.)