Question

Answer the following questions:

1) Mrs. Sahar owns and operates a small seafood restaurant. Currently, marginal cost of her signature dinner platter, “Fisherman’s Choice” is $8 and she sells the plate for $15. Based on the outcome of past discount coupon promotions, Sahar estimates the price elasticity of this dinner platter to be (-2.5). Assume Mrs. Sahar is a profit maximizer.

A) Is she currently charging the optimal price for her “Fisherman’s Choice?” Why?

What price do you recommend to her? Round your answer to the nearest whole dollar


2) Sara operates a shuttle service between two airports in a large metropolitan area. The average amount required for the trip to be economically viable is $100 per trip. Market research shows that on average at any given point there are 10 potential passengers for this trip. These ten (10) individuals may be divided into two distinct groups. The first group, comprise of three (3) individuals which are willing to pay up to $25 a person for the trip. The second group, made up of seven (7) individuals, will pay up to maximum of $9 per person for the shuttle service.

A) Show that why under a uniform single price system the shuttle service will not be
offered.

B) Provide a recommendation that will make the offering of the shuttle service      economically viable and at the same time benefits ALL parties involved.


3) Sophia Corporation plans to import and sell high definition television sets in both the United States and Mexico. All TV sets are made in Malaysia and shipped to North America. Therefore, shipping and handling costs for all sets sold in the US and Mexico may be considered to be the same. The price elasticity of demand for these TV sets are estimated to be (-1.5) in the United States and (-4) in Mexico. The marketing manager suggests the selling unit price of $3,000 in the US and $1,500 in Mexico.   

A) If the firm wants to maximize profit, is this price mix optimal? Why?

A) Distributors in Mexico inform the headquarters that due to competition from Southeast Asian countries, the company has no pricing power in Mexico and accordingly this market should be considered perfectly competitive. What change (if any) in prices should the company introduce in both the US and Mexican markets?

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