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Price determination

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In order to use autos more efficiently, short term rentals of cars has been proposed for urban area use. Cars will be available at popular origins and destinations. One drives the car from one spot to another where another person may subsequently rent the car and so on. The proposal has recently been run as a demonstration project in a suburb of Paris for use in short trips such as for shopping, journey to recreation, to the train station, etc.

Suppose that the yearly demand for a typical individual for such services is estimated to be:

P = 50 - 0.25Q

where Q is the number of trips demanded when the price is P per trip.

Transit International is trying to figure out how to price the service. It costs them a constant 10 to provide a trip. Right now they are charging 18 per trip.

A consultant has suggested a subscription type of service whereby a potential user would purchase a yearly Transit International card. The card would then enable the user to consume a trip at a fixed fee per trip.

If the consultants advice was taken by Transit International, what price should Transit International charge for a yearly card and how much should they charge for each trip taken by the cardholder? Transit International wants to maximize their profits.

How much more profit do they make per customer by following the consultants advice than their current method of selling the service?

The price of a card should be: _______________________

The price of a trip should be:_________________________

Profits are ____________ greater by following the consultants pricing scheme

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In order to use autos more efficiently, short term rentals of cars has been proposed for urban area use. Cars will be available at popular origins and destinations. One drives the car from one spot to another where another person may subsequently rent the car and so on. The proposal has recently been run as a demonstration project in a suburb of Paris for use in short trips such as for shopping, journey to recreation, to the train station, etc.

Suppose that the yearly demand for a typical individual for such services is estimated to be:
P = 50 - 0.25Q
where Q is the number of trips demanded when ...

Solution Summary

The expert examines price determination. How much more profits making per customer by following consultants are determined.

$2.19
See Also This Related BrainMass Solution

Short Run Price and Output Determination by a Monopolist

Starting from Figure 8-6 showing the short-run price and output determination by the monopolist, suppose that the average fixed costs of the monopolist increase by $5 and that its AVC is $6 less than the new ATC at the best level of output. Show the best level of output and price, the amount of profit or loss per unit and in total, and whether it pays for the monopolist to produce.

** ATC=AFC+AVC. After AFC increases by $5, ATC will increase by
$5 (ATC curve moves up vertically by $5 for every output Q) and
MC, D and MR stay the same. The AFC for 500 units is $6, in other
words, the TFC is $3,000. You do not need to submit the figure.

Figure 8-6 Short-Run Price and Output Determination by a Monopolist - The best level of output for the monopolist in the short run is 500 units and is given by point E, where MR = MC. At Q = 500, P = $11 (point A on the D curve), and ATC = $8 (point F), so that the monopolist earns a profit of AF = $3 per unit and AFBC = $1,500 in total.

Please help! I do not understand any of this at all.

I have attached the figure!

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