Suppose That the Demand Curve for Mineral Water Is Given

question 23

Multiple Choice

Suppose that the demand curve for mineral water is given by p = 50 - 16q, where p is the price per bottle paid by consumers and q is the number of bottles purchased by consumers.Mineral water is supplied to consumers by a monopolistic distributor who buys from a monopolistic producer, who is able to produce mineral water at zero cost.The producer charges the distributor a price of c per bottle.Given his marginal cost of c per unit, the distributor chooses an output to maximize his own profits.Knowing that this is what the distributor will do, the producer sets his price c so as to maximize his revenue.The price paid by consumers under this arrangement is

• A)$3.13.
• B)$12.50.
• C)$37.50.
• D)$25.
• E)$1.56.

---

Definitions:

Penetration Pricing Strategy

A strategy where a company sets the price of a product very low to get customers to try it.

Market Share

The portion of a market controlled by a particular company or product, often expressed as a percentage of total sales in that market.

Skimming Pricing Strategy

A pricing approach where a relatively high price is set for a new product or service at its launch to maximize profitability before aiming at more price-sensitive customers.

Odd Pricing Strategy

A pricing strategy where prices are set slightly below a round number, e.g., $19.99, to make products appear less expensive.