he Pear Computer Company just developed a totally revolutionary new personal computer. Pear estimates that it will take competitors at least two years to produce equivalent products. The demand function for the computer is estimated to be P=2,500−500Q�=2,500−500� where Q� is millions of computers. The marginal (and average variable) cost of producing the computer is $900. Assuming Pear acts as a monopolist in its market, the profit-maximizing price and output levels are per computer and million computers, respectively. The total contribution to profits and fixed costs at this output level is million.
he Pear Computer Company just developed a totally revolutionary new personal computer. Pear estimates that it will take competitors at least two years to produce equivalent products. The demand function for the computer is estimated to be P=2,500−500Q�=2,500−500� where Q� is millions of computers. The marginal (and average variable) cost of producing the computer is $900. Assuming Pear acts as a monopolist in its market, the profit-maximizing price and output levels are per computer and million computers, respectively. The total contribution to profits and fixed costs at this output level is million.
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.5P
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Question
he Pear Computer Company just developed a totally revolutionary new personal computer. Pear estimates that it will take competitors at least two years to produce equivalent products. The demand function for the computer is estimated to be
P=2,500−500Q�=2,500−500�
where Q� is millions of computers. The marginal (and average variable) cost of producing the computer is $900.
Assuming Pear acts as a monopolist in its market, the profit-maximizing price and output levels are
per computer and
million computers, respectively. The total contribution to profits and fixed costs at this output level is
million.
Pear Computer is considering an alternative pricing strategy of price skimming. It plans to set the following schedule of prices over the coming two years:
Complete the following table by calculating the contribution to profit and overhead for each of the 10 time periods and prices.
|
Time Period
|
Price
|
Quantity Sold
|
Total Contribution
|
|---|---|---|---|
|
($)
|
(Million)
|
($ Million)
|
|
| 1 | 2,400 | 0.2 |
|
| 2 | 2,200 | 0.2 |
|
| 3 | 2,000 | 0.2 |
|
| 4 | 1,800 | 0.2 |
|
| 5 | 1,700 | 0.2 |
|
| 6 | 1,600 | 0.2 |
|
| 7 | 1,500 | 0.2 |
|
| 8 | 1,400 | 0.2 |
|
| 9 | 1,300 | 0.2 |
|
| 10 | 1,200 | 0.2 |
|
Over the 10 periods, the total contribution to profits and fixed costs from price skimming is
million.
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