11. (25 points) Lochlyn\'s Orchids has two types of customers. One type consists
ID: 1130355 • Letter: 1
Question
11. (25 points) Lochlyn's Orchids has two types of customers. One type consists of tourists who have little knowledge of orchids or the orchid market, and are only in S. Florida for a short period of time. Their demand Lochlyn's Orchids is given by the following: Pr=90-QT/25 where Q, is the number of orchids purchased by tourists, and Pr is the price they pay The second type of customers consist of locals who know about orchids and the orchid market. Their demand curve is Pc = 40-30L/1000 where Q is the number of orchids purchased by locals, and p, the price they pay Lochlyn sells her orchids at two locations Bayside and the Redland (that's an agricultural area in far south Miami-Dade County). Bayside caters only to tourists because tourists are not aware of the Redland location where prices are lower. Locals buy only at the Redland location because prices are lower there. Lochlyn's a) Show that the quantities Lochlyn's Orchids sells to tourists at Bayside and to the locals at the Redland, respectively, are (1,000 orchids, 5,000 orchids). b) Show that the prices Lochlyn's Orchids charges to tourists at Bayside and to the locals at the Redland, respectively, are ($50/orchid, $25/ orchid) Explain why Lochlyn's Orchids charges tourists a higher price. c)Explanation / Answer
PT = 90 - QT/25
PL = 40 - 3QL/1000
MC = AC = 10
a)
PT = 90 - QT/25
MRT = 90 - 2QT/25
Profit maximization at
MRT = MC
90 - 2QT/25 = 10
90 -10 = 2QT/25
80 = 2QT/25
QT = 80(25)/2
= 1000
PL = 40 - 3QL/1000
MRL = 40 - 6QL/1000
MRL = MC
40 - 6QL/1000 = 10
40 - 10 = 6QL/1000
30 = 6QL/1000
QL = 30(1000)/6
= 5000
b)
PT = 90 - QT/25
= 90 - 1000/25
= 90 - 40
= 50
PL = 40 - 3QL/1000
= 40 - 3(5000)/1000
= 40 -15
= 25
c)
PL = 40 - 3QL/1000
dPL/dQL = - 3/1000
so dQL/dPL = - 1000/3
EdL = - (dQL/dPL)(PL/QL)
= - (-1000/3)(25/5000)
= 1.67
PT = 90 - QT/25
EdT = -(dQT/dPT)(PT/QT)
PT = 90 - QT/25
dPT/dQT = - 1/25
so dQT/dPT = - 25
EdT = -(dQT/dPT)(PT/QT)
= -(-25)(50/1000)
= 1.25
since EdT < EdL implies PT > PL
therefore he will charge tourists a higher price
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.