a. Determine OS’s profit-maximizing output and price for the accounting
text.
b. A rival publisher has raised the price of its best-selling accounting text
by $15. One option is to exactly match this price hike and so exactly
preserve your level of sales. Do you endorse this price increase?
(Explain briefly why or why not.)
c. To save significantly on fixed costs, Old School plans to contract out
the actual printing of its textbooks to outside vendors. OS expects to
pay a somewhat higher printing cost per book (than in part a) from
the outside vendor (who marks up price above its cost to make a
profit). How would outsourcing affect the output and pricing
decisions in part (a)?- Firm Z is developing a new product. An early introduction (beating rivals
to market) would greatly enhance the company’s revenues. However, the
intensive development effort needed to expedite the introduction can
be very expensive. Suppose total revenues and costs associated with the
new product’s introduction are given by
where t is the introduction date (in months from now). Some
executives have argued for an expedited introduction date, 12 months
from now (t 12). Do you agree? What introduction date is most
profitable? Explain.- As the exclusive carrier on a local air route, a regional airline must
determine the number of flights it will provide per week and the fare it
will charge. Taking into account operating and fuel costs, airport
charges, and so on, the estimated cost per flight is $2,000. It expects
to fly full flights (100 passengers), so its marginal cost on a per
passenger basisis $20. Finally, the airline’s estimated demand curve is
P 120 .1Q, where P is the fare in dollars and Q is the number of
passengers per week.
a. What is the airline’s profit-maximizing fare? How many passengers
does it carry per week, using how many flights? What is its weekly
profit?
b. Suppose the airline is offered $4,000 per week to haul freight
along the route for a local firm. This will mean replacing one of
the weekly passenger flights with a freight flight (at the same
operating cost). Should the airline carry freight for the local firm?
Explain. - A producer of photocopiers derives profits from two sources: the
immediate profit it makes on each copier sold and the additional profit
it gains from servicing its copiers and selling toner and other supplies.
R 720 8t and C 600 20t.25t^2 ,
56 Chapter 2 Optimal Decisions Using Marginal Analysisc02OptimalDecisionsUsingMarginalAnalysis.qxd 8/17/11 5:17 PM Page 56