1. Two women I went to college with have launched a shoe company, Marguax. 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 customer 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 work and explain reasoning.

Standard

Italian Hand Crafted

#of people in group

High Spenders

$90

$110

200

Low Spenders

$60

$90

400

2. Helium is the second most abundant element in the universe and is used in a variety of essential equipment such as 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?

Country

Capacity (million cubic feet)

Cost to supply (WTS)

United States

4000

$11

Algeria

3000

$38

Australia

2500

$8

Canada

2500

$17

China

2500

$45

Indonesia

2000

$12

Poland

1500

$23

Qatar

1500

$26

Russia

1500

$32

Tanzania

1000

$13

Other countries

1000

$28

b. A $22 tax on the sale of helium is under consideration. All producers would have paid a tax of $22 per million cubic feet produced. Find what the producers will now ear 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.

3. My sister is look 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 Ayutveda. 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.

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 labeling 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?