Eco 5010 Unit 3 Essay

474 WordsApr 26, 20122 Pages
Chapter 6: 3. Should a company ever produce an output if a manager knows it will lose money over the period? Explain. It would depend on if they can redeem themselves by producing money per unit. If they can produce the money over time this way, they shouldn’t lose money over time. It should either balance out or be excess, depending on not only how much you pay per unit, but how much you profit from it as well. 6. A Michigan Court ruled in the 1990s that General Motors did not have the right to close a particular Michigan plant and lay people off. Do you think this ruling benefited the people of Michigan? Explain. I believe at first it will benefit the employees of the plant, but eventually it will not be beneficial because then General Motors will not feel like they can invest in other plants, or may not want to invest in it if it will be a problem with them closing the plants down when they want to, especially if they don’t make enough money. Chapter 7: 5. Explain why perfect personalized pricing is typically more profitable than menu pricing. Why then do companies use menu pricing? Personalized pricing takes out the maximum profit from each consumer. With menu pricing, the consumers obtain surplus. If the firm tries to take out the maximum surplus from each customer by pricing menu options, some of the consumers are most likely going to select different options to obtain surplus. 8. You own a theater with 200 seats. The demand for seats is Q = 300 – 100P. You are charging $1.25 per ticket and selling tickets to 175 people. Your costs are fixed and do not depend on the number of people attending. Should you cut your price to fill the theater? Explain. What other pricing policies might you use to increase your profits? No, you shouldn’t cut the price. The only way that you should cut the price is if someone like a senior citizen or a student is

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