BUS 640 Week 4 Assignment Market Structures and Pricing Decisions Applied Problems

Week 4 AssignmentMarket Structures and Pricing Decisions Applied Problems.
Please, complete the following 2 applied problems in a Word or Excel
document. Show all your calculations and explain your results. Submit
your assignment in the drop box by using the Assignment Submission
button.A small business which produces plastic vacuum-suction
covers for round household dishes has a monopoly that is protected by a
utility patent. The market demand curve for this product is estimated to
be: – 25P where Q is the number of plate covers per year and P is in
dollars. Cost estimation processes have determined that the firm’s cost
function is represented by + 2500Q -0.25*Q2.(i) What is the
profit-maximizing price and output level? Solve this algebraically for
equilibrium P and Q and also plot the MC, D and MR curves and illustrate
the equilibrium point.(ii) What profit do you expect that the firm will make in the first year?(iii) Do you expect this profit level to continue in subsequent years? Why or why not?2.
Greener Grass Company (GGC) competes with its main rival, Better Lawns
and Gardens (BLG), in the supply and installation of in-ground lawn
watering systems in the wealthy western suburbs of a major east-coast
city. Last year, GGC’s price for the typical lawn system was $1,995
compared with BLG’s price of $2,100. GGC installed 9,130 systems, or
about 55% of total sales and BLG installed the rest. (No doubt many
additional systems were installed by do-it-yourself homeowners since the
parts are readily available at hardware stores.)GGC has
substantial excess capacity—it could easily install 25,000 systems
annually, as it has all the necessary equipment and can easily hire and
train installers. Accordingly, GGC is considering expansion into the
eastern suburbs, where the homeowners are less wealthy. In past years,
both GGC and BLG have installed several hundred systems in the eastern
suburbs but generally their sales efforts are met with the response that
the systems are too expensive. GGC has hired you to recommend a pricing
strategy for both the western and east¬ern suburb markets for this
coming season. You have estimated two distinct demand functions, as
follows:Qw =1,035.548 – 6.07164Pgw + 2.83Pbw + 2,100Ag – 1,500Ab + 0.2348Ywfor the western market andQe = 49,714.29 – 30.7692Pge + 6.984Pbe + 1,180Ag – 950Ab + 0.0825Yefor
the eastern market, where Q refers to the number of units sold; P
refers to price level; A refers to advertising budgets of the firms (in
millions); Y refers to average disposable income levels of the potential
customers; the subscripts w and e refer to the western and eastern
markets, respectively; and the subscripts g and b refer to GGC and BLG,
respectively. GGC expects to spend $1.5 million on advertising this
coming year and expects BLG to spend $1.2 million on advertising. The
average household disposable income is $55,000 in the western suburbs
and $25,000 in the eastern suburbs. GGC does not expect BLG to change
its price from last year, since it has already distributed its glossy
brochures (with the $2,100 price stated) in both suburbs, and its TV
commercial has already been produced. GGC’s cost structure has been
estimated as TVC 5 755.363Q 1 0.005Q2 where Q represents single lawn
watering systems.a. Derive the demand curves for GGC’s product in each market.b.
Plot graphically the demand and MR curves for each market, and also
show GGC’s combined marginal revenue curve (MR) and its MC curve. Show
graphically the quantities that should be produced and sold, and the
prices that should be charged, in each market.c. Confirm your quantity and price results algebraically.d.
Calculate the price elasticities of demand in each market and discuss
these in relation to the prices to be charged in each market.e.
Add a short note to GGC management outlining any reservations and
qualifications you may have concerning your price recommendations.

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