The Tire Shed Is a Regional Chain That Sells Tires

question 60

Essay

The Tire Shed is a regional chain that sells tires and other automobile parts. The company sells its own brand of tires under a block pricing scheme that charges $100 per tire if the customer buys one or two tires and $75 per tire if the customer buys three or four tires. The monthly demand curve facing the typical store is Q = 1000 - 4P, and the marginal cost of the tires is constant at $40 per tire.
a. What are the monthly profits for the typical store under the block pricing scheme? What is the consumer surplus enjoyed by customers of the typical store?
b. Suppose the firm is considering a uniform pricing scheme with P = $90 per tire. How does the firm profit and consumer surplus under uniform pricing compare to the profit and consumer surplus outcomes under block pricing?

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Definitions:

Welfare Unionism

A form of unionism that focuses on improving the immediate work environment and living standards of workers, including benefits like health insurance and pensions.

Bribery

The act of offering, giving, receiving, or soliciting something of value as a means of influencing the actions of an individual holding a public or legal duty.

Industrial Democracy

A concept and practice that seeks to include employees in the decision-making processes of businesses, with the goal of creating more egalitarian workplaces.

Revolutionary Unionism

A form of unionism aiming to overthrow the prevailing capitalist system and establish a society based on workers' control and direct democracy.