1. Sandy Wiches sells sandwhiches at a beach location. On a typical day, its demand equation is:

    Q=1200-500P, where P is price.

    a. If P=$1.50, determine the number of sandwhiches sold and the price elasticity of demand. (4)

    b. Determine the ? price elasticity of demand between prices of $1.50 and $1.75. (3)

    c. If daily costs are: TC = 50+1Q, determine the profit-maximizing price, quantity and profit. (6)

    d. If Sandy Wiches has the ability to be a perfect price discriminator (1st degree price discrimination), determine its               maximum daily profit.  Hint! A sketch of the demand and marginal cost curves may be helpful. (5)

2. Nearby College has determined that its demand by students is:

   Q=5000-0.5P+0.1Y+0.2Pc

    where Q is the number of students, P is its tuition, Y=GNP and Pc = the tuition charged by Competition College.

    a. Determine the enrollment if P=$4000, Y=$5000, and Pc=$6000. (2)

    b. Determine the price elasticity of demand at the tuition of $4000. (3)

    c. Sketch Nearby's demand curve. (Label the axes and relevant intercept values). (5)

    d. Determine the income elasticity of demand when Y=$5000. (3)

    e. Determine the cross-price elasticity of demand when Pc=$6000. (2)

    f. What advice do you have for Nearby's administrators? Explain. (2)

3. Big State charges in-state students $2000 a term and out-of-state students $4500 a term. The respective demands are:

    Q=25,000-3P and Qo=20,000-1.5Po

    a. If the marginal cost per student is $3000 (asssume that are no fixed costs), determine Big States's optimal tuition structure. (6)

    b. What are Big State's maximum profits?

    c. If Big State could not price discriminate, determine its optimal tuition and enrollment. (5)

    d. If Big State wants to maximize revenues, subjec to breaking even, what tuition should it set and how many students will enroll? Hint! Think about breakeven points. (4)

4. Suppose that a firm's marginal cost is constant at $35 and its constant price demand elasticity is -3.

    a. What is the profit maximizing price? (2)

    b. If its income elasticity is 1.5 and its advertising elasticity is 2, determine the effect on the number of units sold if it raises prices by 7.5%, incomes increase by 5%, and it cuts its advertising budget by 10%. (3)

    c. Using the information in part (b), determine the necessary change in price to maintain a constant quantity given the increased income and cut in advertising. (3)