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Acme Electronics produces high-quality CD players and sells them only to retailers. Monthly demand for CD players at a typical retail outlet is given by

P = 400 -Q

(letting P represent retail price and Q the quantity demanded)

a. If Acme's wholesale price to retailers is $200 per unit, compute (1) price retailers will charge and (2) Acme's monthly revenues (not retailer's).  Suppose that, except for cost of the CD players, all of retailer's costs are fixed and that the retailer wishes to maximize profit.

b. Assume Acme decides that instead of cutting \wholesale price of the CD players it will offer a $50 rebate to consumer (that is, wholesale price is $200.  Suppose that rebate program imposes no cost on retailer and that every consumer takes advantage of rebate) compute retail price paid by consumer at the store (that is, not net of the rebate), quantity sold and revenues earned by Acme (both gross amount and revenues after paying rebate).  (Note: problem is not as tricky as it might seem. Just make a distinction between price charged by retailer and the after-rebate price paid by consumer. In doing so remember that demand function given above describes relationship between prices consumer pays and amount demanded.

 

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M923050

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