Many college bookstores give faculty a discount that students do not receive. Show with a sketch graph why this practice is most likely a profit maximizing strategy instead of a college perk given to the faculty at college expense.
What will be an ideal response?
The graph above shows that the student demand is more inelastic at any price level than the faculty demand. (At any given price the location on the demand curve is proportionately further down the demand curve for the students.) For this reason they can be charged a higher price. By observing where the MC of producing is equal to the marginal revenue received from both markets, the bookstore manager will discover that overall profits are maximized when he charges Ps to the students and Pf to the faculty.
You might also like to view...
Suppose a competitive firm's total revenue is $1,000,000 where MR = MC, its explicit variable costs are $900,000, its fixed costs are $90,000 of which $60,000 are sunk in the short run
If its implicit opportunity costs are $50,000, the firm should A) produce because its economic profit is positive. B) produce because its economic profit is zero. C) produce even though its economic profit is negative. D) shut down.
According to the above figure for a gasoline market, what happens when the price per gallon of gasoline jumps from $1 to $4?
A) A gasoline surplus is replaced by a gas shortage. B) The market moves from a shortage of 40 million gallons/day to a surplus of 50 million gallons/day. C) The market shortage is replaced by market equilibrium. D) A surplus of 40 million gallons/day results.
One lesson that American policy makers can learn from the health care systems of other counties is
a. people must be willing to accept long waiting lists for expensive services. b. a government-run system ensures equal access across socio-economic groups. c. the importance of having a safety valve. d. the mix between general practitioners and specialists is of little importance. e. private insurance cannot complement government insurance.
There are very few non-price means of undermining cartel agreements to restrict competition among members
a. True b. False Indicate whether the statement is true or false