Economics Assignment

1. Multiple Product Pricing:

Answer the following about the pricing of multiple products:

a. Icarus Medical Supplies produces adhesives that are used to reassemble broken bones. Pindrop Medical Products manufactures patented pins that are also used to reassemble broken bones. Both of these firms are maximizing profit. If Icarus merges with Pindrop, then the merged firm will maximize profits if it (choose one):

i. Decrease prices of pins and adhesives
ii. Increase prices of pins and adhesives
iii. Do not change the price of pins and adhesives.

b.Suppose you have started a web-site selling printer cartridges for HP printers. You have decided to start to sell printer paper as well. How would this effect the optimal price of cartridges? (choose one).

i. Decrease price of cartridges.
ii. Increase the price of cartridges.
iii. No change in price of cartridges.

1. Price Discrimination:

Knoebel's Amusement park is a free entrance park that charges per ride. Suppose that there are two types of visitors to Knoebel's, senior citizens and teenagers. Their demand curves are given by:

Seniors: q s = 4 - P
Teenagers:qt = 5 - P
Combined: q = 9 - 2P

Suppose once the rides are built there are no additional costs per ride:

a. What is the optimal price to charge if Knoebel's does not price discriminate?
b. What is total revenue if Knoebel's does not price discriminate?
c. What is the optimal price to charge teenagers and seniors if the Knoebel's does price discriminate?
d. What is total revenue if Knoebel's does price discriminate?
e. Suppose in order to implement a price discrimination strategy there is a nominal fee of 0.5 in order to advertise a possible discount. Should Knoebel's price discriminate? Briefly explain.

2. Aggregate Demand and Supply:

For each of the following please draw an Aggregate Demand, Aggregate Supply and Long-run Aggregate supply curves in longrun equilibrium (all three intersect). Then for each situation show the most immediate effect of how these curves may change. Briefly explain why you showed the shift you did, and how the situation may change inflation and GDP.

a. Due to conflict in the Middle East there is a temporary reduction in the supply of oil.
b. In order to help balance the budget, Congress and the President increase income taxes.
c. A ten percent increase in stock prices makes consumers feel wealthier.