Summary 115b. What price should he charge for each type of parker? How many of each
type of parker will use the garage at these prices? Will the garage be full?
c. Answer the questions in part (b) assuming the garage capacity is
400 cars.- A golf-course operator must decide what greens fees (prices) to set on
rounds of golf. Daily demand during the week is: PD 36 QD/10
where QDis the number of 18-hole rounds and PDis the price per
round. Daily demand on the weekend is: PW 50 QW/12. As a
practical matter, the capacity of the course is 240 rounds per day. Wear
and tear on the golf course is negligible.
a. Can the operator profit by charging different prices during the week
and on the weekend? Explain briefly. What greens fees should the
operator set on weekdays, and how many rounds will be played? On
the weekend?
b. When weekend prices skyrocket, some weekend golfers choose to play
during the week instead. The greater the difference between weekday
and weekend prices, the greater are the number of these “defectors.”
How might this factor affect the operator’s pricing policy? (A
qualitative answer will suffice.)
Discussion QuestionThe notion of elasticity is essential whenever the multi-
plicative product of two variables involves a trade-off. (Thus, we have already
appealed to price elasticity to maximize revenue given the trade-off between
price and output.) With this in mind, consider the following examples.
a. Why might a bumper crop (for instance, a 10 percent increase in a crop’s
output) be detrimental for overall farm revenue?
b. Court and legal reforms (to speed the process of litigation and lower its
cost) will encourage more disputants to use the court system. Under what
circumstances, could this cause an increasein total litigation spending?
c. Despite technological advances in fishing methods and more numerous
fishing boats, total catches of many fish species have declined over time.
Explain.
d. Predict the impact on smoking behavior (and the incidence of lung disease)
as more and more producers market low-tar and low-nicotine cigarettes.Spreadsheet Problems
S1. Let’s revisit the maker of spare parts in Problem S1 of Chapter 2 to
determine its optimal price. The firm’s demand curve is given by
Q 400 .5P and its cost function by C 20,000 200Q .5Q^2.
a. Treating price as the relevant decision variable, create a spreadsheet
(based on the example shown) to model this setting. Compute the
price elasticity in cell B12 according to EP(dQ /dP)(P/Q ).*
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