Question

1. The American Baker’s Association reports that annual sales of bakery goods last year rose 15 percent, driven by a 50 percent increase in the demand for bran muffins. Most of the increase was attributed to a report that diets rich in bran help prevent certain types of cancer. You are the manager of a bakery that produces and packages gourmet bran muffins, and you currently sell bran muffins in packages of three. However, as a result of this new report, a typical consumer’s inverse demand for your bran muffins is now P = 3 - 0.5Q.

If your cost of producing bran muffins is C(Q) = 1.0Q, determine the optimal number of bran muffins to sell in a single package and the optimal package price.

Instruction: Enter your response for the optimal package price rounded to two decimal places.

Optimal package size:  units

Optimal package price: $

2.

Suppose the European Union (EU) is investigating a proposed merger between two of the largest distillers of premium Scotch liquor. Based on some economists’ definition of the relevant market, the two firms proposing to merge enjoyed a combined market share of about two-thirds, while another firm essentially controlled the remaining share of the market. Additionally, suppose that the (wholesale) market elasticity of demand for Scotch liquor is -1.2 and that it costs $16.30 to produce and distribute each liter of Scotch.

Based only on these data, provide quantitative estimates of the likely pre- and postmerger prices in the wholesale market for premium Scotch liquor.

Instruction: Do not round intermediate calculations. Enter your final responses rounded to the nearest penny (two decimal places).

Pre-merger price: $
Post-merger price: $

Answer 1