12 May WHAT ARE THE RESPECTIVE PRICES YOU ARE GOING TO CHARGE FOR LOCAL AND OUT OF TOWN SKIERS?
White Mountain Ski Resort (WMSR) has the following demand equations for its customers.
[Connecting the final exam with the first mid-term exam in terms of price elasticity concept]
The demand equation for the resort is as follow with MC of $10.
Q = 1000 – 30P with corresponding P = 33.33 0.033Q with MR = 33.33 0.067Q
The demand equation for Out of Town Skiers is Qo = 500 -10P with corresponding P = 50 0.1Q with MR = 50 0.2Q
The demand equation for local skiers is Ql = 500 20P with corresponding P = 25 0.05Q with MR = 25 0.1Q. VC = MC is still $10 for both skiers.
What are the respective prices you are going to charge for local and out of town skiers? How many local and out of town skiers would you get with your new pricing strategy?
2. A firm has the following demand and cost equation for a product.
[from #7 Chapter 9]
Q = 200 5P; P = 40 0.2Q and MR = 40 0.4Q
TC = 400 + 4Q
a. What are price quantity and profit for this company?
b. Suppose the original demand shifted to Q = 100 5P. If it is a firm under monopolistic competition what might have happened to this firm in this monopolistic market for such a shift in view?
c. What should the firm do in the face of a new demand equation in the short run and why? Provide a computational basis for your answer.
d. What kind of strategies should the firm to consider for the long run assuming that the firm did not do much after the shift in (b)?
e. Now Q = 400 10P with P = 40 0.1Q with the corresponding MR = 40 0.2Q & cost equation TC = 400 + 2Q as a result of operating in a Global Economy. Explain the differences between in demand and cost equations.
f. What are price quantity and profit for this company as a result of operating in global economy?
g. How did operating in a global open economy change the situation in terms of price quantity and profit?
h. Now summarize the differences in three cases (a) (b) and (c) and explain the impact of global economy in this company.
i. How does this case contrast with the negative impact of outsourcing in 1x. and 1y. in Exam #1?
j. It is sometimes said that a firm has to be lucky first and then good. Explain what is meant by this statement.
k. Review the case history of Pepsi v Coke at the beginning of my lecture note of S and D of Chapters 3 & 4 from Module One. In answering this question consider why Pepsi was lucky in the first place and was good which helped Pepsi survive during the depression of the 1930s after two bankruptcy filings. Google the history of Pepsi v. Coke during the 1930s And then explain the rationale of Pepsi strategy which not only helped Pepsi survive and became a major competitor to Coke.
3. A firm in an oligopolistic industry has identified two sets of demand curve. If the firm is the only one that changes price (i.e. other firms do not follow) its demand curve takes the form: Q = 82 8P (1) with MR = 10.25 – 0.25Q. If it is expected that competitors will follow the price action of the firm the demand curve is of the form: Q = 44 3P (2) with MR = 14.66 0.66Q [from #3 Chapter 9 HW]
Discuss the difference in implication behind the portions of two demand curves one with L shape above and the other with reverse L shape below. Explain which one is considered to be optimistic and which one pessimistic and why?
4. Ace and Baumont Corporations make and sell electrical equipment. Both have to decide whether or not to discount. The payoff matrix of Discount and Not to Discount expressed in terms of profit (+) or loss (-) for each firm is given below for each combination of strategies. Read my lecture note on game theory
Baumont Corporation
No Discount Discount
No Discount ($10mil $10mil) (-$4mil $16mil)
Ace Corporation
Discount ($16mil -$4mil) (4mil $4mil)
In the above matrix the first number is for Ace and the second for Baumont respectively.
a. What are the optimum strategy for each the resulting profit/loss for each and why?
b. Is there any other strategy better than the one they took in (a) which makes each firm better off as opposed to the strategy taken? If there is why did they not take it?
c. How would you compare this case to the so called prisoners dilemma case? Explain it clearly.
d. How would you compare this case to the so called Nash Equilibrium? Explain the difference between this case and Nash Equilibrium clearly. You may need to Google for Nash Equilibrium.
e. Does it matter whether this is one-shot deal or meant to be a situation in which each corporation faces continuously for some time? Why or why not?
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