Stringer Bell sells two products, red candy for $4 and yellow candy for $5. In a typical hour, 5 customers will buy only red candy and 4 customers buy only yellow candy, but there are 2 people who buy both. After asking around, Stringer Bell learns that the red-candy buyers would also buy yellow candy if it were to cost $2, and yellow-candy buyers would also buy red candy if they were sold for $2. Stringer Bell considers selling red and yellow candy together in a bundle, in addition to selling them separately at the original prices. What is the optimal price of the bundle? (assume that the cost of producing a good or creating a bundle is zero)
a) 8
b) 7
c) 6
d) 9
Stringer Bell sells two products, red candy for $4 and yellow candy for $5. In a typical hour, 5 customers will buy only red candy and 4 customers buy only yellow candy, but there are 2 people who buy both. After asking around, Stringer Bell learns that the red-candy buyers would also buy yellow candy if it were to cost $2, and yellow-candy buyers would also buy red candy if they were sold for $2. Stringer Bell considers selling red and yellow candy together in a bundle, in addition to selling them separately at the original prices. What is the optimal price of the bundle? (assume that the cost of producing a good or creating a bundle is zero)
a) 8
b) 7
c) 6
d) 9
For unlimited access to Homework Help, a Homework+ subscription is required.
Related textbook solutions
Related questions
1) Suppose your grandmother gave you $25 for your birthday and you decided to spend all of it on candy bars and bags of popcorn. The price of candy bars is $1.25 and price of a bag of peanuts is $3.75.
a) Construct a table showing the alternative combinations of the two products that are available.
b) Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one bag of peanuts?
c) How, in general, would you decide which of the available combinations of candy bars and bags of peanuts to buy?
2) With current technology, suppose a firm is producing 750 screwdrivers daily. Also assume that the least-cost combination of resources in producing those screwdrivers is 15 units of labor, 20 units of land, 4 units of capital, and 3 unit of entrepreneurial ability, selling at prices of $50, $45, $75, and $50, respectively. If the firm can sell these 750 screwdrivers at $2.50 per unit,
a) what is its total revenue?
b) what is its total cost?
c) what is its profit or loss?
d) will it continue to produce screwdrivers?
e) If this firmâs situation is typical for the other makers of screwdrivers, will resources flow toward or away from this product?
3) How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do equilibirium price and quantity rise, fall , or are the answers indeterminate because they depend on the magnitudes of the shifts?
a)Supply decreases and demand is constant. Change in eqilibrium price chnage in eqilibrium quantity
b)Demand decreases and supply is constant.
c)Supply increases and demand is constant.
d)Demand increases and supply increases.
e)Demand decreases and supply decreases.
4)Zeke likes to go to music concerts. The number of times per year that he attends concerts depends on both the price of the concerts as well as Zekeâs income and the cost of other types of entertainmentâin particular, how much it costs to go see a movie instead of attending concerts. The three demand schedules in the $60,000 per year and movies cost $10 each. In scenario D2, Zeke's income is also $60,000 per year, but the price of seeing a movie rises to $12. And in scenario D3, Zeke's income goes up to $80,000 per year, while movies cost $12.
a)Using the data under D1 and D2, calculate the cross-elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the cross-elasticity of demand.) Is the cross-elasticity the same at all three prices? Are movies and concerts substitute goods, complementary goods, or independent goods?
b)Using the data under D2 and D3, calculate the income elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.) Is the income elasticity the same at all three prices? Are concerts an inferior good?
PRICE | D1 | D2 | D3 |
50 | 10 | 5 | 12 |
40 | 15 | 10 | 25 |
30 | 25 | 15 | 40 |
Income 60,000 60,000 80,000
Cost of revenue 10 12 12
5) On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good.
P | Qd(D1) | Qd(D2) | Qd(d3) |
20 | 0 | 0 | 1 |
19 | 0 | 1 | 2 |
17 | 0 | 2 | 3 |
16 | 0 | 3 | 4 |
15 | 1 | 4 | 5 |
14 | 2 | 5 | 6 |
13 | 3 | 6 | 7 |
12 | 4 | 7 | 8 |
11 | 5 | 8 | 9 |
10 | 6 | 9 | 10 |
8. Two methods of reducing pollution
Suppose the government wants to reduce the total pollution emitted by three firms in its area. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. The government wants to reduce total pollution in the area to 6 units, In order to do so,it can choose between the following two methods:
1. | The government sets pollution standards (Method 1) |
2. | The government allocates tradable pollution permits. (Method 2) |
compare the two methods to determine the least-cost way of achieving the desired pollution quantity.
Eliminating pollution can be more difficult(and thus more costly) for some kinds of firms than for others. The following table shows the cost of elimanating each unit of pollution for each of the three firms.
Firm X | Firm y | Firm z | |
---|---|---|---|
Cost of elimination the first unit of pollution | $650 | $55 | $90 |
Cost of elimination the 2nd unit of pollution | $800 | $70 | $125 |
Cost of elimination the 3rd unit of pollution | $1,500 | $110 | $180 |
Cost of elimination the 4th unit of pollution | $10,500 | $550 | $1080 |
Under Method 1, the government sets pollution standards so that each firm must reduce its polluton by 2 units. Fill in the following table with the total cost to each firm of reducing its pollution by this amount
Total cost of eliminating 2 units of pollution | FIRM X | FIRM Y | FIRM Z |
Adding up the costs to the three firms, you can see that the total cost of eliminating 6 units of pollution through regulatory standard is _________
$1645
$1790
$2,785
$1,490
Now suppose the government uses method 2 to reduce pollution in the area from 12 units to 6 units by issuing two pollution permits to each firm. For each permit a firm has in its possession, it can emit 1 unit of pollution, but firms are also free to trade pollution permits with one another. For example, if firm X were to buy a permit form firm Y, firm X would end up with three permits and would need to reduce its pollution by only1 unit, whereas firmY would end up with only one permit and would have to reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless
Because of its high pollution-reduction costs, firm X might be better off buying permits form firm Y and firm Z so that it doesn't have to reduce its own pollution emissions. At which of the following prices are both firm y and firmz willing to sell one of their permits to firm X? check all that apply
- $390
-$155
-$415
-$70
Again , suppose that you are considering the method of pollution reduction involving trabable permits. Suppose the owners of the three firms get together and agree on a trading price of $420 per permit. Fill in the following table with the action taken by each firm, the amount each firm will pollute, and the amount it costs each firm to reduce pollution to the necessary level. (Hint: do not include the prices of permits in the cost of reducing pollution)
FIRM X | FIRM Y | FIRM Z | |
Initial pollution permit allocation | 2 units | 2 units | 2 ;units |
action | |||
Final pollution amount |
Given this senario, rthe total cost of eliminating 6 units of pollution using a tradable permit is _______
$0
$1,470
$1,100
$630
On the basis of this example, you can conclude that eliminating pollution is ________ costly to society when
more
less
the government allocates pollution permits that can be bought and sold than when it directs each firm to eliminate a certain amount of pollution.
Blank under method one
FIRM X | FIRM Y | FIRM Z | |
$800 | $125 | $305 | |
choose the right answer | $2,300 | $70 | $215 |
$2,150 | $165 | $125 | |
$1450 | $180 | $270 |
Blanks under tradable permits
| FIRM X | FIRM Y | FIRM Z | |
Initial pollution permit allocation | 2 units | 2 units | 2 ;units | |
action | buy 1 permit | buy 1 permit | buy 1 permit | |
Final pollution amount | 1 unit | 1 unit | 1 unit | |
Cost of polluton reduction | $650 | $0 | $125 |