You can post them as you have them ready if you can– or all at once too thanks.

1. A museum in Barcelona, Spain is setting prices for the glossy museum guides it sells in its gift shop, which show high-quality pictures of the artwork along with descriptions and expert commentary. An economist helping them with the decision has estimated that the elasticity of demand for museum guides among locals and among foreign visitors are –2 and

–1.25, respectively. Suppose the marginal cost of production of a guide is €8.

a) Give one plausible reason why demand is more elastic among locals (than visitors).

b) What must be the price of a guide for locals and the price of a guide for visitors, if the museum has set prices to maximize profit? (MOST IMPORTANT PART)

c)The guide has been published in Catalan (a language spoken by some 10 million people in Eastern Spain and Andorra, but hardly anywhere else) as well as in English, Spanish, and five other languages. Explain why this helps make the pricing strategy in (a) feasible.

2. .Nicki runs a small business selling printed T-shirts online. On a typical month, she sells 500 T-shirts at $15 each. The costs associated with materials, screen printing, online payment processing and shipping add up to $11 per T-shirt. Nicki works on her T-shirt business at home, in her living room: she spends 200 hours a month making new designs, printing them, filling orders, and keeping track of paperwork. If she were not working on her T-shirt business, she could easily find work collecting carts and bagging groceries at a local supermarket for $10 an hour in her hometown of Anchorage, AK.

a)Is Nicki currently earning a positive, negative, or zero economic profit?

After Uber and Lyft finally enter Alaska, Nicki has the chance to earn about $16 an hour driving for either ride-sharing service.

b)If she continues to run her online T-shirt business, will Nicki be earning a positive, negative, or zero economic profit?

c)Discuss whether Nicki should shut down her online T-shirt business or continue operating it under each of the two scenarios above (i.e.: before and after the arrival of ride-sharing services). Justify your answer.

3. .A bridge connecting an island city to the mainland is operated by the local authority. Before the pandemic, the bridge usage was 200,000 trips a week, and the toll price was $6 per trip. The bridge is large enough that it never experiences congestion at this level of usage. The maintenance cost of the bridge is $62.4 million a year, or $1.2 million a week, independently of how many vehicles use the bridge. There is no cost to the local authority from allowing an additional vehicle to travel through the bridge.

Possibly due to the pandemic, demand for trips on the bridge has fallen to 150,000 a week. Concerned that they would be unable to cover the cost of maintaining the bridge at this lower level of usage, the local authority decides to divide the cost by the usage to come up with a new toll price of $8 per trip. At this new price, usage drops further, to 120,000 trips per week. In response, the authority raises the price to $10 per trip. This causes a further decline in bridge usage to 90,000 trips per week.

Assume the goal of the local authority is to maximize the profit and/or minimize the loss from operating the bridge, and consider the following questions.

a)Calculate the optimal toll price. Explain your reasoning.

b)Suppose the local authority's Department of Transportation were revamped and its new staff could bring down the cost of maintaining the bridge to $52 million a year, or $1 million a week. What would be the new optimal toll price?

c)Comment on the local authority's previous decision to set the original toll price at $6 per trip (before the pandemic, when that price led to 200,000 trips per week). Was it optimal? If so, why? If not, should the price and have been set lower or higher, and why? If you believe there is not enough information to decide either way, explain what information you would require and why.