7) American Tire and Rubber Company sells identical radial tires under the firm's own brand name and private label tires to discount stores. The radial tires sold in both sub-markets are identical, and the marginal cost is constant at $10 per tire for both types. The firm has estimated the following demand curves for each of the markets. PB = 70 - 0.0005QB (brand name) PP = 20 - 0.0002QP (private label). Quantities are measured in thousands per month and price refers to the wholesale price.

American currently sells brand name tires at a wholesale price of $28.50 and private label tires for a price of $17. Are these prices optimal for the firm?

8) Customers attending basketball games at the local arena must pay for parking on the grounds and then pay for a ticket needed to enter the arena.

If the arena manager knows that the customers' identical demands can be expressed collectively as P = 25 - 0.000625Q how much of a parking fee could the management collect if the marginal cost of providing entertainment were a constant MC = $10 per seat?

9) Merriwell Corporation has a virtual monopoly in the ultra-high speed computer market. Merriwell has recently introduced a new computer that will be used by satellite installations around the world. The installations have identical demands for the computers. Merriwell's managers have decided to lease rather than sell the computer, but they have been unable to decide whether to use a single hourly rental charge or a two-part tariff. Under the two-part tariff, users would be levied an "access charge" plus an hourly rental rate. Merriwell's marketing staff estimates the demand and marginal revenue curves below for each potential user: P = 45 - 0.025Q MR = 45 - 0.05Q, where P = price per hour of computer time, and Q = the number of hours of computer time leased per month. Merriwell offers their users extensive maintenance assistance and technical support. The firm's engineers estimate that marginal cost is $30 per computer hour.

a. Assuming that Merriwell chooses to set a single price, what are the firm's profit-maximizing price and output?

b. Assuming that Merriwell uses a two-part tariff, what "access charge" and hourly rental fee should the firm set? Compare the firm's revenues under the options in (a) and (b).

c. Briefly describe how differing demand curves among the various buyers would alter the two-part tariff.