1. Two women I went to college with have launched a shoe company, Margaux. When they

initially launched, they just sold one style of shoe for one price. Then they decided to offer two

types of shoes one that is standard and one that is fancier and higher quality, which they called

the "Italian hand-crafted shoe." The standard costs them $5 per pair to produce and the

"Italian hand-crafted shoe" costs them $30 per pair.

Their market research shows that they have two kinds of consumers -- high-spending and low-

spending customers - each with different WTPs for the two products (summarized below) Each

costumer will buy at most one unit of the product. There are 200 high spenders in their market

and 400 low spenders.

How much of each or both shoes should the company produce and what price should they

charge? Show your work and explain your reasoning.

Standard Italian hand-crafted # of people in group

High spenders $90 $110 200

Low spenders $60 $90 400

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2. Helium is the second most abundant element in the universe and is used in a variety of

essential equipment such a scuba-diving tanks and hospital MRI scanners, as it is one of the

best coolants. However, helium is incredibly difficult to obtain and is currently largely produced

as a byproduct of natural gas drilling.

The data below shows the producers and consumers in the helium market.

a. Based off of the producer and consumer data, what do you predict will be the

equilibrium price and quantity for helium in the market? Please show your work and

explain your reasoning.

b. A $22 tax on the sale of helium is under consideration. All producers would have pay a

tax of $22 per million cubic feet produced. Find what the producers will now earn per

million cubic foot of helium and how the tax will impact the quantity of helium

produced & sold, and if it will change which producing countries will sell helium.

Country

Capacity

(million

cubic feet)

Cost to

supply (WTS)

Consumer

s

Quantity

demanded

(million cubic

feet)

WTP

United States 4000 $ 11 A 3000 $ 64

Algeria 3000 $ 38 B 2500 $ 71

Australia 2500 $ 8 C 2500 $ 13

Canada 2500 $ 17 D 2000 $ 20

China 2500 $ 45 E 2000 $ 36

Indonesia 2000 $ 12 F 2000 $ 45

Poland 1500 $ 23 G 1500 $ 65

Qatar 1500 $ 26 H 1500 $ 70

Russia 1500 $ 32 I 1000 $ 52

Tanzania 1000 $ 13 J 1000 $ 51

Other

countries 1000 $ 28 K 1000 $ 14

L 500 $ 48

M 500 $ 28

N 500 $ 61

O 500 $ 19

3. My sister is looking to launch a baby food company in Europe where she lives. Her company

will specialize in plant-based, organic baby food meal kits and the recipes follow the Indian

holistic medical traditions of Ayurveda. Each kit is intended to feed the baby for one week and

comes in packaging with four jars of baby food.

She has done an analysis by country of the price she could sell her product in each country and

the estimated annual sales (see correspond Excel file). In the Excel there is also her cost data.

Because of EU regulations, she must charge the same price for a meal kit in all the countries.

a. Find profit maximizing quantity and price at which she should sell her meal kits. What is

her overall annual profit?

b. She finds out that in order to sell in different countries across the EU, she must add

bespoke nutrition labelling to each box which will cost her an additional 0.5 per box.

Moreover, for each country she must also pay a fixed annual licensing fee of 10,000

per country. What is her profit maximizing quantity and price now? What is her overall

profit now?

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4. At the end of 2020, Ford Motors introduced an electric car that analysts predicted could

finally rival Tesla's widely popular electric vehicles. So far, Tesla has essentially held the electric

vehicle market in monopoly. Ford is trying to figure out how to price their car, the Mustang

Mach-e. In the Excel attached, see the analysis done by Ford showing their and Tesla's

expected profits (shown in millions $) for different price points.

a) Given this profit information, show Telsa and Ford's dominant strategies (e.g., at each

price point of their competitor, what is the profit-maximizing price point for them).

b) Based off of the dominant strategies, what do you predict the equilibrium price for the

Tesla car and the Mustang Mach-e will be?

c) Is this a stable or unstable equilibrium? Explain your rationale. (Hint: is there some

other price points at which both Tesla and Ford are better off? But what would happen

if the companies chose those prices?)

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5. It is a rainy day in New York City. Uber has collected the data the expected number of fares

per hour their drivers can earn, by borough, on a rainy day. The expected total fares per hour

varies with the number of taxi drivers available. The data is in the attached Excel.

a. Calculate the marginal revenue per taxi driver by borough.

b. Currently there are 130 taxi drivers in Manhattan, 70 in Brooklyn and 50 in Queens -

should some taxi drivers go to different boroughs? What is the profit maximizing

allocation by borough of taxi drivers for Uber, assuming they cannot bring more drivers

out to drive right now?

c. Uber has alerted drivers not currently working that it is a profitable time for them to

drive. Because of this alert, is now has 40 more drivers who will be available to drive.

Which boroughs should Uber send them to? What is the new profit maximizing

allocation by borough for taxi drivers?

d. What is the maximum per hour that Uber should offer to pay these 40 additional

drivers?