In Questions a Firm Sells Its Product to Two

question 25

Multiple Choice

In Questions a firm sells its product to two groups of buyers: daytime buyers and nighttime buyers. There are 50 daytime buyers, all of whom have identical demands given by D_D in the figure below. There are 50 nighttime buyers, all of whom have identical demands given by D_N in the figure below. The firm's variable costs are constant (SMC = AVC = $12) and its total fixed cost is $250,000. The marketing director must devise a two-part pricing plan that will maximize the firm's profit.
-Should the firm bother to sell output to the nighttime market?

• A) Yes, because only $77,200 of profit is earned by serving only the daytime buyers.
• B) Yes, because only $137,200 of profit is earned by serving only the daytime buyers.
• C) No, because $240,000 of profit is earned by serving only the daytime buyers.
• D) No, because $300,000 of profit is earned by serving only the daytime buyers.

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Definitions:

Required Reserves

The minimum amount of reserves that banks are required to hold by law, as a safeguard against bank runs.

Demand Deposits

Bank account balances that can be withdrawn on demand without any notice, such as in checking accounts.

Credit Availability

The ease with which individuals and businesses can obtain loans or credit, often influenced by interest rates and economic policies.

Price Level

A measure of the average prices of goods and services in an economy at a given time.