1. Consolidated Salt Company sells table salt to both retail grocery chains and commercial users (e.g., bakeries, snack food makers, etc.). The demand function for each of these markets is:

Retail grocery chains: P1 = 180 8Q1

Commercial users: P2 = 100 4Q2

where P1 and P2 are the prices charged and Q1 and Q2 are the quantities sold in the respective markets. Consolidated's total cost function (which includes a "normal" return to the owners) for salt is:

TC = 50 + 20(Q1 + Q2)

(a) Determine Consolidated's total profit function.

(b) Assuming that Consolidated is effectively able to charge different prices in the two markets, what are the profit-maximizing price and output levels for the product in the two markets? What is Consolidated's total profit under this condition?

(c) Assuming that Consolidated is required to charge the same price in each market, what are the profit-maximizing price and output levels? What is Consolidated's total profit under this condition?

2. Firms should begin their pricing decisions by:

a.

assessing total marginal cost of the product

b.

identifying the value drivers in each customer segment

c.

researching the market price of competitors

d.

none of the above

3. The optimal mark-up is:m = -1/ (E+1).When the mark-up on cookware equals 50%, then demand elasticity (E) for cookware is:

a.

-1.5

b.

-1

c.

-2

d.

-3

4. Firms must prevent resale between segments using a variety of:

a.

fences

b.

bridges

c.

tunnels

d.

none of the above