Question 5 A news magazine offers students a discount on the regular subscriptio

Question

Question 5

A news magazine offers students a discount on the regular subscription rate. The total number of subscriptions is optimal, and, at the current prices, the marginal revenue from the last subscription sold to a student is $6, while the marginal revenue from the last subscription sold to a regular customer is $10. In order to maximize profit, the magazine should

Select one:

a. offer all customers the same discount received by the students.

b. stop offering students a discount on the regular subscription rate.

c. offer students a lower discount (raise the price to students).

d. offer students a higher discount (lower the price to students).

Question 6

A firm is producing two goods (X and Y) that are related in consumption. The demand function for X is:

QDX = 120 - 4PX - 10PY

Which of the following pairs of goods might the firm be producing?

Select one:

a. newspapers and tennis balls

b. shampoo and conditioner

c. bran cereal and sugar-frosted corn flakes

d. cola and caffeine-free coke

Question 7

In order to maximize profit, a firm like the one above, which is producing two goods that are related in consumption, should choose the levels of output at which

Select one:

a. total marginal revenue equals the marginal cost of each good.

b. the marginal revenue of each good equals total marginal cost.

c. total marginal revenue equals total marginal cost.

d. marginal revenue equals marginal cost for each good simultaneously.

Explanation / Answer

Answer 5. Should offer lower discounts to the students. Since the number of subscriptions is optimal and MR from regular customers is higher, selling more to regular customer is more profitable. Also the demand from students is more elastic than demand from regular customers.

Answer 6. Since price of X and Y are negatively related, the 2 goods are complementary goods. Out of the given option shampoo and conditioner are complementary goods. Hence the answer is B.

Answer 7. For profit maximisation, MR equals MC for each good simultaneously

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