Posted: November 15th, 2021

Market Structures and Pricing Decisions Applied Problems, economics homework help

Question description

Market Structures and Pricing Decisions Applied Problems**** Please Read Carefully and Follow all instructions to the letter!!!Number and label each Question!!!!Original work!!!!!!
Please complete the following two applied problems:

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Problem 1: 

Robert’s New Way Vacuum Cleaner Company is a newly started small
business that produces vacuum cleaners and belongs to a
monopolistically competitive market. Its demand curve for the product is
expressed as Q = 5000 – 25P where Q is the number of vacuum cleaners
per year and P is in dollars. Cost estimation processes have determined
that the firm’s cost function is represented by TC = 1500 + 20Q +
0.02Q2. 

Show all of your calculations and processes. Describe your
answer for each question in complete sentences, whenever it is
necessary.
What are the profit-maximizing price and output levels?
Explain them and calculate algebraically for equilibrium P (price) and Q
(output). Then, plot the MC (marginal cost), D (demand), and MR
(marginal revenue) curves graphically and illustrate the equilibrium
point.How much economic profit do you expect that Robert’s company will make in the first year?Do you expect this economic profit level to continue in subsequent years? Why or why not?

Problem 2: 

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Greener Grass Company (GGC) competes with its main rival, Better
Lawns and Gardens (BLG), in the supply and installation of in-ground
lawn watering systems in the wealthy western suburbs of a major
east-coast city. Last year, GGC’s price for the typical lawn system was
$1,900 compared with BLG’s price of $2,100. GGC installed 9,960 systems,
or about 60% of total sales and BLG installed the rest. (No doubt many
additional systems were installed by do-it-yourself homeowners because
the parts are readily available at hardware stores.) 

GGC has substantial excess capacity–it could easily install
25,000 systems annually, as it has all the necessary equipment and can
easily hire and train installers. Accordingly, GGC is considering
expansion into the eastern suburbs, where the homeowners are less
wealthy. In past years, both GGC and BLG have installed several hundred
systems in the eastern suburbs but generally their sales efforts are met
with the response that the systems are too expensive. GGC has hired you
to recommend a pricing strategy for both the western and eastern suburb
markets for this coming season. You have estimated two distinct demand
functions, as follows: 

Qw =2100 – 6.25Pgw + 3Pbw + 2100Ag - 1500Ab + 0.2Yw 

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for the western market and 

Qe = 36620 - 25Pge + 7Pbe + 1180Ag - 950Ab + 0.085Ye 

for the eastern market, where Q refers to the number of units
sold; P refers to price level; A refers to advertising budgets of the
firms (in millions); Y refers to average disposable income levels of the
potential customers; the subscripts w and e refer to the western and
eastern markets, respectively; and the subscripts g and b refer to GGC
and BLG, respectively. GGC expects to spend $1.5 million (use Ag = 1.5)
on advertising this coming year and expects BLG to spend $1.2 million
(use Ab = 1.2) on advertising. The average household disposable income
is $60,000 in the western suburbs and $30,000 in the eastern suburbs.
GGC does not expect BLG to change its price from last year because it
has already distributed its glossy brochures (with the $2,100 price
stated) in both suburbs, and its TV commercial has already been
produced. GGC’s cost structure has been estimated as TVC = 750Q +
0.005Q2, where Q represents single lawn watering systems. 

Show all of your calculations and processes. Describe your
answer for each item below in complete sentences, whenever it is
necessary.
Derive the demand curves for GGC’s product in each market.Derive GGC’s marginal revenue (MR) and marginal cost
(MC) curves in each market. Show graphically GGC’s demand, MR, and MC
curves for each market.Derive algebraically the quantities that should be produced and sold, and the prices that should be charged, in each market.Calculate the price elasticities of demand in each
market and discuss these in relation to the prices to be charged in each
market.Add a short note to GGC management outlining any
reservations and qualifications you may have concerning your price
recommendations.

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