ECO100Y1 Lecture Notes - Lecture 7: Air Canada, Canadian Airlines, Marginal Revenue

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fuchsiafox414

17 Apr 2018

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Totsposes is the only photography business in town that specializes in portraits of small children. Sven, who owns and runs totsposes, expects to encounter an average of eight customers per day, each with a reservation price (a willingness to pay) shown in the following table. If the marginal cost of each photo portrait is , how much should. How much consumer surplus is generated each day at this price? (c) what is the socially efficient number of portraits? (d) Sven is very experienced in the business and knows the reservation price of each of his customers. If he is allowed to charge any price he likes to any customer, how many portraits will he produce each day, and what will his profit be? (e) In this case, how much consumer surplus is generated each day? (f) Suppose sven is permitted to charge two prices.

Related Questions

On the first day of the New Year to get her business started, the owner/photographer of Exquisite Portraits Inc. paid $200 for business cards, $1000 for a listing in Yellow Pages, and $250 for an annual business license. She also leased a professional portrait camera and studio lighting equipment by signing an agreement to pay a monthly lease of $1000 each month for the next twelve months. This lease is ironclad: She must pay for all 12 months and she cannot sublease to anyone else. She rents her office and studio for $1,400 per month which must be paid at the beginning of each month. She does not have a lease on the office/studio, so she can vacate the office/studio at the end of any month should she decide to move to a new location or to go out of business. After she opens the office/studio on the first day of each month, her monthly cost of electricity for lighting the office and running her coffee machine is constant $45 per month, because she always keeps the lights on in the office and drinks the same amount of coffee no matter how many photos she shoots each month. Additional electricity is required for the portrait studio lights, which varies directly with the number of hours the lights are used each month for photo sessions. Last year, before starting this business, the owner of Exquisite Portraits Inc. earned a salary of $5000 per month working at a bank. Answer the following questions about the costs for Exquisite Portraits Inc.:

What are the monthly fixed costs, quasi-fixed costs, and variable costs for Exquisite Portraits Inc.?

If the owner of Exquisite Portraits Inc. wants to close her studio and go out of business at the end of August, identify her sunk costs and avoidable costs.

At the end of August, what role would the sunk cost play in the owner/photographerâs decision to go out of business?

In making her decision to start her own business, would her decision have been more or less difficult to make if sunk costs were zero at Exquisite Portraits? Explain.

greywallaby7

Bob, Sue, and Katie go out every week and spend whatever money they have left from the week on a dinner at Burger Bart's, the only restaurant in town. The amount of cash they have at the end of the week is the most they will pay, but if there's anything left over after dinner, then they will also play video games. Bob always has $7, Sue always has $8, Katie always has $15, and Burger Bart knows this. His marginal cost of providing a meal is constant at $5 no matter how many meals he makes.

If Bart can only charge one price to the group, what price will he charge?
How many meals will be sold?
How much is the producer surplus and the consumer surplus?

If Bart can perfectly price discriminate, what prices will he charge?
How many meals will he sell?
How much will the producer and consumer surplus be now?

C. How would this be different if there were another restaurant in town? How many restaurants are in town?

D. What must be true for the results to hold for the competitive market?

roseoyster584

On Tuesday nights, a local restaurant has certain number of kids:

No. Willingness to pay
1 $5
2 $4
3 $3
4 $2
5 $1
6 $0

If the price of an additional serving of chicken nuggets is $3, how many servings will Nina buy for Braden? She will buy 3, because willingness to pay is greater than or equal to the price. She will not buy the 4th because she is willing to pay $2, but they are charging $3.

How much consumer surplus does he receive?

The following week, Nina and Braden are back at the restaurant again, but now the price of a serving of chicken nuggets is $4. By how much does his consumer surplus decrease compared to the previous week?

One week later, they return to the restaurant again. Nina discovers that the restaurant is offering an all-you-can-eat special for $12. How many chicken nugget servings will Braden eat, and how much consumer surplus does he receive now?

Suppose you own the restaurant and Braden is a typical customer. What is the highest price you can charge for the all-you-can-eat special and still attract customers?

blushsnake861

ECO100Y1 Lecture Notes - Lecture 7: Air Canada, Canadian Airlines, Marginal Revenue

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