ECO 550 Strayer University Managerial Economics Problem Set Worksheet

ECO 550 Assignment Week 5 Managerial Economics Problem SetProblem 1: Using the Marginal Approach (40 points)Suppose your company runs the shuttle business for a hotel to and from the local airport. The costs for different customer loads are:1 customer: $302 customers: $323 customers: $354 customers: $385 customers: $426 customers: $487 customers: $578 customers: $68.Problem 2: Elasticity and Pricing (40 points)Suppose the number of firms you compete with has recently increased. You estimated that as a result of the increased competition, the demand elasticity has increased from ?2 to ?3 (i.e., you face more elastic demand). You are currently charging $10 for your product. What is the price that you should charge if demand elasticity is -3?Problem 3: Price Discrimination (40 points)An amusement park, whose customer set is made up of two markets, adults and children, has developed demand schedules as follows:Price ($)QuantityAdultsChildrenThe marginal operating cost of each unit of quantity is $5. Because marginal cost is a constant, so is average variable cost. Ignore fixed costs. The owners of the amusement part want to maximize profits.Calculate the price, quantity, and profit if:Problem 4: Bundling (40 points)Time Warner could offer the History channel (H) and Showtime (S) individually or as a bundle of both.Suppose the reservation prices of customers 1 and 2 (the highest prices they are willing to pay) are presented in the boxes below.The cost to Time Warner is $1 per customer for licensing fees.PreferencesShowtimeHistory ChannelCustomer 1Customer 2