1.In 1993, Chicago Bears President Michael McCaskey negotiatednew contracts for the team's leading offensive and defensive players,quarterback Jim Harbaugh and defensive end Richard Dent. Harbaugh was an average quarterback whom fans admiredfor his tenacity, if not his proficiency at throwing the ball. Dent was one ofthe best at his position, but many fans complained that Dent frequently gaveless than 100 percent effort. McCaskey offered Harbaugh a long-term contractthat paid $5 million for the 1993 season, and nearly $4 million per seasonafter that. McCaskey originally gave Dent a multiyear contract that paid nearly$1.2 million per year, but he and Dent subsequently agreed to add a clause tothat contract enabling Dent to become a free agent and negotiate a new contractwith any team at the end of the 1993 season.
Based on the above, which player do you think had a betteryear in 1993, and why do you predict that? You should ignore other factorsoutside of the above information (e.g., the possibility that one player wasinjured during the 1993 season and therefore performed poorly, etc).
2.Ron and Bob's Stereo sellstelevisions and digital video recorders (DVRs). The company has estimated thedemand for these items and determined there are three consumer types (A, B andC) with equal numbers of each (assume 1 of each for simplicity). The threetypes of consumers have the following maximum willingness to pay for the twoproducts:
| |
DVR |
TV |
| A |
12 |
28 |
| B |
4 |
29 |
| C |
10 |
30 |
Ron and Bob's cost for each item is $9 perunit. Any consumer's maximum willingness to pay for a bundle of one TV and oneDVR would be the sum of the maximum willingness to pay for each item. Consumerswill demand (at most) one DVR and one TV (that is, a consumer would never buy 2TVs or a DVR and a bundle of one DVR and one TV).
a. If Ron and Bob's are only able to sell DVRs andTVs separately, what are the profit maximizing prices for the two items, andhow much profit will they make?
b. If Ron and Bob's sell a package that consists ofone TV and one DVR, what is the profit maximizing price for this package andwhat profit will they make?
c. If Ron and Bob's could perfectly pricediscriminate, what profit would they make?