Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A monopolistic manufacturer of high-end leather goods sells a particular type of leather handbag through company-owned stores. The company operates two different types of stores.

image text in transcribed

A monopolistic manufacturer of high-end leather goods sells a particular type of leather handbag through company-owned stores. The company operates two different types of stores. Type 1 stores are located in upscale shopping malls and are visited by consumers who highly value the company's brand name. The demand curve for handbags sold through these types of stores is given by Q1=40004P1, where P1 is the price in $ per handbag and Q1 is the number of handbags sold per quarter. The identical handbag is also sold through Type 2 stores that are located in factory-outlet malls. These stores are visited by consumers who, on average, are more price-sensitive than those who visit the Type 1 stores. The demand curve for handbags sold through these types of stores is given by Q2=600016P2, where P2 is the price in $ per handbag and Q2 is the number of handbags sold per quarter. The marginal cost is $50 per handbag for both types of stores. a) (6 points) Suppose first that the monopolistic manufacturer wants to charge the same price in both shops to avoid arbitrage by consumers. What is the profit-maximizing total quantity of handbags sold in both outlets per quarter? What is the corresponding profit-maximizing price? Q=P= b) (7 points) Suppose that the monopolist manufacturer now uses price discrimination, i.e., charges a different price in each outlet. What is the profit-maximizing quantity of handbags sold in each type of outlet per quarter? What is the profitmaximizing price of handbags sold in each type of outlet? Q1=Q2=P1=P2= c) (7 points) Again, suppose that the monopolist manufacturer uses price customization, i.e., charges a different price in each outlet. Suppose that the demand curves for Type 1 and Type 2 stores are again as in the main text, i.e., Q1=40004 P1 and Q2=600016P2. However, you have been informed that due to a disruption in production, there are only 2000 handbags available for sale for that quarter. Given that there are only 2000 handbags available, what is the profit-maximizing quantity of handbags sold in each type? Q1=

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting

Authors: Earl K. Stice, James D. Stice

19th edition

1133957919, 978-1285632988, 1285632982, 978-0357691229, 978-1133957911

More Books

Students also viewed these Accounting questions

Question

=+ If they arent, what is the means for resolving the conflict?

Answered: 1 week ago