Suppose you are the manager for Horizon, a telecommunication company. Market research has shown that the demand by a typical customer for the product you sell (Q is a GB of data transfers) is given by: P = $5-0.250 From your production department, you are told that the variable costs of production are given by: VC(Q)= $20 a. If you decide to offer the product for sale to all buyers at a single price, what price will you charge and how much will you sell to a typical customer? b. What profits per consumer will you earn under this pricing strategy? c. Now suppose you decide to use a simple block pricing strategy. What happens to revenues if you charge $4.25/GB for the first 3 GBs, $3.50/GB for the next 3 GBs and $2.50/GB for the next block of 4 GBs? d. What profits per consumer will the firm earn under this pricing strategy? e. Compare the profits under the two pricing strategies. Comment on the comparison.

Suppose you are the manager for Horizon, a telecommunication company. Market research has shown that the demand by a typical customer for the product you sell (Q is a GB of data transfers) is given by: P = $5-0.250 From your production department, you are told that the variable costs of production are given by: VC(Q)= $20 a. If you decide to offer the product for sale to all buyers at a single price, what price will you charge and how much will you sell to a typical customer? b. What profits per consumer will you earn under this pricing strategy? c. Now suppose you decide to use a simple block pricing strategy. What happens to revenues if you charge $4.25/GB for the first 3 GBs, $3.50/GB for the next 3 GBs and $2.50/GB for the next block of 4 GBs? d. What profits per consumer will the firm earn under this pricing strategy? e. Compare the profits under the two pricing strategies. Comment on the comparison.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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