MANAGERIAL ECONOMICS (BECON300)

PLEASE SHOW YOUR WORK AND STEP BY STEP EXPLANATIONS SO I CAN UNDERSTAND WHAT YOU DID!

Question 1:

Suppose Spotify is a firm with market power sells its' annual subscriptions for premium service to two different groups of consumers. The demand curve for group 1 is given by: P1 = 130 - 1.67Q1 The demand curve for group 2 is given by: P2 = 230 - 6.25Q2 The common marginal cost function is given by: MC= 30.

a. Solve for the profit maximizing quantities and prices for each of the two different groups of consumers. b. Graph the respective demand, marginal revenue and marginal cost curves in 2 separate graphs (1 graph for market 1 and a second graph for market 2). c. Calculate the own price elasticity of demand for each group of consumers.

Question 2:

Suppose the estimated market demand and market supply curves for a perfectly competitive industry are as follows: Qd = 25,000 - 5,000P + 25M Qs = 240,000 + 5,000P - 2,000Pi

where P is price, M is income, and Pi is the price of a key input. The forecasts for the next year are m = $9,000 and p= $20. Average variable cost for the typical perfectly competitive firm is estimated to be: AVC = 14 - 0.008Q + 0.000002Q^2 and Fixed Costs = $6000.

a. Find the profit maximizing quantity for this firm at the market price, and calculate profits at the profit maximizing output. b. Should this firm shut down? Explain your answer in words and justify using numbers. c. Depict this result in a graph. Clearly label your ATC, AVC, MC curves and the market price that this firm faces. Depict your profit maximizing output and show the profit/loss that occurs at this output.