14. A rock-climbing school faces two demand curves. The demand by local resident

Question

14. A rock-climbing school faces two demand curves. The demand by local residents is Q- 400 - 0.5P, and the demand by others is Q- 500 -0.5P. The marginal cost of serving either local or nonlocal residents is constant at $100. If the rock-climbing school cannot practice third-degree price discrimination and must charge a single price to all customers, it will charge: a. $400 b. $375 c. $800 d. $500 15. The outcomes of this game is A, B A U9,10 6,8 A D12,3 8,13 14,9 a. (9,10) b. (14,9) C. (6, 8) d. (12, 3)

Explanation / Answer

(14) (d)

Demand function for locals: QL = 400 - 0.5PL

Demand function for others: QO = 500 - 0.5PO

If a single price is charged, PL = PO = P and aggregate demand: Q = QL + QO

Q = 400 - 0.5P + 500 - 0.5P

Q = 900 - P

P = 900 - Q

Profit is maximized when Marginal revenue (MR) = MC

Total revenue (TR) = P x Q = 900Q - Q2

MR = dTR / dQ = 900 - 2Q

Equating with MC,

900 - 2Q = 100

2Q = 800

Q = 400

P = 900 - 400 = $500

NOTE: As per Chegg answering guideline, first question is answered.

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