Question

upeluille.euuapluuiSes/267/sections/5bdd5265-8e7b-46a1-87e2-c0f64aa886b4/coursework/mod Q 12 3-A Professor Parsons wants to diversify his business portfolio. He starts Dancing Economists LLC (DE). The company sends economists to dance and entertain at events such as birthday parties, graduations, and even Bachelorette parties! You are a consultant for DE and Professor Parsons wants your recommendations on ways to maximize profits. a) For birthday parties, you find your elasticity of demand is -4.2. You are currently charging $200 an hour with a $200 minimum. You find revenue for each event is $200. You hypothesize that people may bore of dancing economist quickly. Thus, it might be better to set a fixed higher price (appearance fee) instead of an hourly rate. Can you obtain the marginal cost based on the information given? Can you determine the optimal price, or do you need more information? If you can determine the optimal price, what is it? Are you optimizing? Fully explain your answer, including what information you need from DE, if any. [5 pts] Answer: BI U ABE X, X E 2

Answer 1

Answer

Marginal cost would be $200 however with the introduction of new fixed prize policy. Since, the demand is perfectly elastic, setting up higher fixed cost will lead to reduction in demand, thus fall in revenue.

Optimal price can not be found since the demand curve is not given.

Demand curve is required to be able to find optimal price that maximizes revenue.