Market Structures And Pricing Applied Problems

 Economics
: Master
: Essay
: English (U.S.)
: 2 pages/550 words apa one source due in 20 hours

BUS640.W4A1.10.2013

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Total Possible Score: 7.00

1a. Explains and Calculates the Profit-Maximizing Price and Output Levels; Plots the Marginal Cost (MC), Demand (D), and Marginal Revenue (MR) and Illustrates the Equilibrium Point

Total: 1.00Distinguished – Accurately calculates and thoroughly explains the profit-maximizing price and out levels; accurately plots the MC, D, and MR curves and illustrates the equilibriums point.Proficient – Calculates and explains the profit-maximizing price and output levels; plots the MC, D, and MR curves and illustrates the equilibrium point. A few inaccuracies in the calculations or minor details are missing from the explanation.Basic – Calculates and partially explains the profit-maximizing price and output levels; partially plots the MC, D, and MR curves and illustrates the equilibrium point. A several inaccuracies in the calculations and/or relevant details are missing from the explanation.Below Expectations – Attempts to calculate and explain the profit-maximizing price and output levels; attempts to plot the MC, D, and MR curves and illustrate the equilibrium point; however, many inaccuracies in the calculations and significant details are missing from the explanation.Non-Performance – The explanation and calculation of the profit-maximizing price and output levels and the plotting of the MC, D, and MR curves are either nonexistent or lack the components described in the assignment instructions.

1b. Describes and Calculates the Economic Profit that Robert’s Company Will Make in the First Year

Total: 1.00Distinguished – Thoroughly describes and accurately calculates the economic profit that Robert’s company will make in the first year.Proficient – Describes and calculates the economic profit that Robert’s company will make in the first year. A few inaccuracies in the calculations or minor details are missing from the description.Basic – Partially describes and calculates the economic profit that Robert’s company will make in the first year. Several inaccuracies in the calculations and/or relevant details are missing from the description.Below Expectations – Attempts to describe and calculate the economic profit that Robert’s company will make in the first year; however, many inaccuracies in the calculations and significant details are missing from the description.Non-Performance – The description and calculation of economic profit are either nonexistent or lack the components described in the assignment instructions.

1c. Discusses Whether or Not the Economic Profit Is Expected to Continue in Subsequent Years

Total: 1.00Distinguished – Thoroughly discusses whether or not the economic profit is expected to continue in subsequent years.Proficient – Adequately discusses whether or not the economic profit is expected to continue in subsequent years. Minor details are missing.Basic – Partially discusses whether or not the economic profit is expected to continue in subsequent years. Relevant details are missing.Below Expectations – Attempts to discuss whether or not the economic profit is expected to continue in subsequent years; however, significant details are missing.Non-Performance – The discussion of whether or not the economic profit is expected to continue in subsequent years is either nonexistent or lacks the components described in the assignment instructions.

2a. Derives the Demand Curves in Each Market

Total: 0.70Distinguished – Accurately derives the demand curves in each market.Proficient – Derives the demand curves in each market. There are few inaccuracies in the demand curves.Basic – Partially derives the demand curves in each market. There are several inaccuracies in the demand curves.Below Expectations – Attempts to derive the demand curves in each market; however, there are numerous inaccuracies in the demand curves.Non-Performance – The derivation of the demand curves in each market is either nonexistent or lacks the components described in the assignment instructions.

2b. Derives GGC’s Marginal Revenue (MR) and Marginal Cost (MC) Curves in Each Market, and Plots Them on the Graphs

Total: 0.70Distinguished – Thoroughly derives GGC’s marginal revenue (MR) and marginal cost (MC) curves in each market and accurately plots them on the graphs.Proficient – Derives GGC’s marginal revenue (MR) and marginal cost (MC) curves in each market and plots them on the graphs. There are few inaccuracies in the calculations.Basic – Partially derives GGC’s marginal revenue (MR) and marginal cost (MC) curves in each market and plots them on the graphs. There are several inaccuracies in the calculations.Below Expectations – Attempts to derive GGC’s marginal revenue (MR) and marginal cost (MC) curves in each market and plot them on the graphs; however, there are many inaccuracies in the calculations.Non-Performance – The derivations of GGC’s marginal revenue (MR) and marginal cost (MC) curves in each market and the plot of them on the graphs are either nonexistent or lack the components described in the assignment instructions.

2c. Derives Algebraically and Describes the Quantities that Should be Produced and Sold and the Prices that Should be Charged in Each Market

Total: 0.70Distinguished – Thoroughly and accurately derives and describes the quantities that should be produced and sold and the prices that should be charged in each market.Proficient – Derives and describes the quantities that should be produced and sold and the prices that should be charged in each market. There are few inaccuracies in the calculations and minor details are missing.Basic – Partially derives and describes the quantities that should be produced and sold, and the prices that should be charged, in each market. Several inaccuracies in the calculations and/or relevant details are missing.Below Expectations – Attempts to derive and describe the quantities that should be produced and sold, and the prices that should be charged, in each market; however, many inaccuracies in the calculations and significant details are missing.Non-Performance – The algebraic derivation and description of the quantities that should be produced and sold, and the prices that should be charged, in each market is either nonexistent or lacks the components described in the assignment instructions.

2d. Calculates the Price Elasticities and Discusses the Relationship between the Price Elasticities and the Prices to be charged in Each Market

Total: 0.70Distinguished – Provides an accurate calculation of the price elasticities of demand and a comprehensive discussion of the relationship between the price elasticities and the prices to be charged in each market.Proficient – Provides a calculation of the price elasticities of demand and a discussion of the relationship between the price elasticities and the prices to be charged in each market. Few inaccuracies are present in the calculations or minor details are missing from the discussion.Basic – Provides a calculation of the price elasticities of demand and a partial discussion of the relationship between the price elasticities and the prices to be charged in each market. Several inaccuracies are present in the calculations and/or relevant details are missing from the discussion.Below Expectations – Provides a calculation of the price elasticities of demand and a minimal discussion of the relationship between the price elasticities and the prices to be charged in each market. Many inaccuracies are present in the calculations and/or significant details are missing from the discussion.Non-Performance – The calculation of the price elasticities and the discussion of the relationship between the price elasticities and the prices to be charged are either nonexistent or lack the components described in the assignment instructions.

2e. Outlines and Describes Reservations and Qualifications Concerning Price Recommendations

Total: 0.60Distinguished – Provides a valid outline and description of reservations and qualifications concerning price recommendations.Proficient – Provides an outline and description of reservations and qualifications concerning price recommendations, but minor details are missing.Basic – Provides a partial outline and description of reservations and qualifications concerning price recommendations, but relevant details are missing.Below Expectations – Provides a minimal outline and description of reservations and qualifications concerning price recommendations, but significant details are missing.Non-Performance – The outline and description of reservations and qualifications concerning price recommendations are either nonexistent or lacks the components described in the assignment instructions.

Critical Thinking: Explanation of Issues

Total: 0.20Distinguished – Clearly and comprehensively explains in detail the issue to be considered, delivering all relevant information necessary for a full understanding.Proficient – Clearly explains in detail the issue to be considered, delivering enough relevant information for an adequate understanding.Basic – Briefly recognizes the issue to be considered, delivering minimal information for a basic understanding.Below Expectations – Briefly recognizes the issue to be considered, but may not deliver additional information necessary for a basic understanding.Non-Performance – The assignment is either nonexistent or lacks the components described in the instructions.

Written Communication: Content Development

Total: 0.10Distinguished – Uses appropriate, pertinent, and persuasive content to discover and develop sophisticated ideas within the context of the discipline, shaping the work as a whole.Proficient – Uses appropriate and pertinent content to discover ideas within the context of the discipline, shaping the work as a whole.Basic – Uses appropriate and pertinent content, but does not apply it toward discovering or developing ideas. Overall, content assists in shaping the written work.Below Expectations – Uses content, though it may be unrelated or inappropriate to the topic. Content does not contribute toward the development of the written work, and may distract the reader from its purpose.Non-Performance – The assignment is either nonexistent or lacks the components described in the instructions.

Written Communication: Control of Syntax and Mechanics

Total: 0.10Distinguished – Displays meticulous comprehension and organization of syntax and mechanics, such as spelling and grammar. Written work contains no errors, and is very easy to understand.Proficient – Displays comprehension and organization of syntax and mechanics, such as spelling and grammar. Written work contains only a few minor errors, and is mostly easy to understand.Basic – Displays basic comprehension of syntax and mechanics, such as spelling and grammar. Written work contains a few errors, which may slightly distract the reader.Below Expectations – Fails to display basic comprehension of syntax or mechanics, such as spelling and grammar. Written work contains major errors, which distract the reader.Non-Performance – The assignment is either nonexistent or lacks the components described in the instructions.

Written Communication: APA Formatting

Total: 0.20Distinguished – Accurately uses APA formatting consistently throughout the paper, title page, and reference page.Proficient – Exhibits APA formatting throughout the paper. However, layout contains a few minor errors.Basic – Exhibits basic knowledge of APA formatting throughout the paper. However, layout does not meet all APA requirements.Below Expectations – Fails to exhibit basic knowledge of APA formatting. There are frequent errors, making the layout difficult to distinguish as APA.Non-Performance – The assignment is either nonexistent or lacks the components described in the instructions.
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Required Resources

Text

Please read the following chapters in: Managerial Economics:

  • Chapter 7: Market Structure and Price Determination
  • Chapter 8: Pricing Decisions in Practice

Article

Straits Times. (1997, August 8). Microsoft-Apple Partnership Stuns Computing Industry (Links to an external site.). New Straits Times –  Google search. Retrieved November 13, 2012, from http://news.google.com/newspapers?id=rZxOAAAAIBAJ&sjid=HBUEAAAAIBAJ&pg=6732,188074&dq=apple+partnership+with+microsoft&hl=en

Websites

Bloomberg (Links to an external site.). (http://www.bloomberg.com)

Cable News Network (Links to an external site.). (http://www.cnn.com)

The Economist (Links to an external site.). (http://www.economist.com

Week 4 – Assignment

Market Structures and Pricing Decisions Applied Problems

Please complete the following two applied problems:

Problem 1: 
Robert’s New Way Vacuum Cleaner Company is a newly started small business that produces vacuum cleaners and belongs to a monopolistically competitive market. Its demand curve for the product is expressed as Q = 5000 – 25P where Q is the number of vacuum cleaners per year and P is in dollars. Cost estimation processes have determined that the firm’s cost function is represented by TC = 1500 + 20Q + 0.02Q2.

Show all of your calculations and processes. Describe your answer for each question in complete sentences, whenever it is necessary.

  1. What are the profit-maximizing price and output levels? Explain them and calculate algebraically for equilibrium P (price) and Q (output). Then, plot the MC (marginal cost), D (demand), and MR (marginal revenue) curves graphically and illustrate the equilibrium point.
  2. How much economic profit do you expect that Robert’s company will make in the first year?
  3. Do you expect this economic profit level to continue in subsequent years? Why or why not

Problem 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 $1,900 compared with BLG’s price of $2,100. GGC installed 9,960 systems, or about 60% of total sales and BLG installed the rest. (No doubt many additional systems were installed by do-it-yourself homeowners because 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 eastern suburb markets for this coming season. You have estimated two distinct demand functions, as follows:
Qw =2100 – 6.25Pgw + 3Pbw + 2100Ag – 1500Ab + 0.2Yw
for the western market and
Qe = 36620 – 25Pge + 7Pbe + 1180Ag – 950Ab + 0.085Ye
for 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 (use Ag = 1.5) on advertising this coming year and expects BLG to spend $1.2 million (use Ab = 1.2) on advertising. The average household disposable income is $60,000 in the western suburbs and $30,000 in the eastern suburbs. GGC does not expect BLG to change its price from last year because 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 = 750Q + 0.005Q2, where Q represents single lawn watering systems.
Show all of your calculations and processes. Describe your answer for each item below in complete sentences, whenever it is necessary.

  1. Derive the demand curves for GGC’s product in each market.
  2. Derive GGC’s marginal revenue (MR) and marginal cost (MC) curves in each market. Show graphically GGC’s demand, MR, and MC curves for each market.
  3. Derive algebraically the quantities that should be produced and sold, and the prices that should be charged, in each market.
  4. Calculate the price elasticities of demand in each market and discuss these in relation to the prices to be charged in each market.
  5. Add a short note to GGC management outlining any reservations and qualifications you may have concerning your price recommendations.