Problems

Note 

In all of the following problems, assume a linear demand curve.

1. We are trying to determine the profit-maximizing price for a video game console. Currently we are charging $180 and selling 2 million consoles per year. It costs $150 to produce a console, and price elasticity of demand for consoles is 3. What price should we charge for a console?

2. Now assume that, on average, a purchaser of our video game console buys 10 video games and we earn $10 profit on each video game. What is the correct price for consoles?

3. In our razor and blade example, suppose the cost to produce a blade is $0.20. If we charge $0.35 for a blade, a customer buys an average of 50 blades from us. Assume the price elasticity of demand for blades is 3. What price should we charge for a razor and for a blade?

4. You are managing a movie theater that can handle up to 8000 patrons per week. The current demand, price, and elasticity for ticket sales, popcorn, soda, and candy are given in Figure 71-4. The theater keeps 45 percent of ticket revenues. Unit cost per ticket, popcorn sales, candy sales, and soda sales are also given. Assuming linear demand curves, how can the theater maximize profits? Demand for foods is the fraction of patrons who purchase the given food.

   
   Figure 71-4: Movie problem data

5. A prescription drug is produced in the United States and sold internationally. Each unit of the drug costs $60 to produce. In the German market, we are selling the drug for 150 Euros per unit. The current exchange rate is 0.667 U.S. dollars per Euro. Current demand for the drug is 100 units, and the estimated elasticity is 2.5. Assuming a linear demand curve, determine the appropriate sales price (in Euros) for the drug.