Both problems must be passed to get the course approval. It is important to answer the questions in the problem;
the most convenient way is through a text box.
Problem 1
The starting file is “Assignment 2 Problem 1 Starting File”. A brewing company has $100.000 to spend on
advertising in four markets. The sales revenue (in thousands of dollars) that can be created in each market is
given by spending ??
thousands dollars in market ? is given in the starting file.
a) Give an economic interpretation of the “a” and “b” parameters in the starting file.
b) To maximize its sales revenue, how much money should the company spend in each market?
c) Use a sensitivity analysis to see how a change in the advertising budget effects the optimal sales revenue
(Hint: You may need to use the multistart option).
Problem 2
The starting file is “Assignment 2 Problem 2 Starting File”. A fictional company, Bashro, produces a toy called a
Formertrans. Bashro identifies six consumer groups which have different willingness to pay for the Formertrans:
Price willing to pay in NOK (or marginal value of Formertrans)
Formertrans Consumer 1 Consumer 2 Consumer 3 Consumer 4 Consumer 5 Consumer 6
1 kr 2 270,00 kr 6 450,00 kr 3 000,00 kr 4 400,00 kr 2 150,00 kr 2 940,00
2 kr 1 101,00 kr 2 957,00 kr 2 019,00 kr 2 385,00 kr 1 193,00 kr 3 075,00
3 kr 813,00 kr 1 516,00 kr 1 226,00 kr 1 898,00 kr 577,00 kr 1 770,00
4 kr 465,00 kr 1 047,00 kr 708,00 kr 1 001,00 kr 301,00 kr 598,00
5 kr 266,00 kr 525,00 kr 483,00 kr 491,00 kr 198,00 kr 613,00
The variable costs per unit is 420 NOK. The number of consumers differs between groups:
Number of consumers per consumer group
Consumer 1 Consumer 2 Consumer 3 Consumer 4 Consumer 5 Consumer 6
Market size 22.000 7.500 48.000 12.500 63.000 42.000
Bashro objective is to maximize profits.
a) Determine whether this is a linear or a non-linear problem. Explain why.
b) Bashro charges a single price for all consumer groups. Find the optimal price, production quantity for
each group and the corresponding profits.
c) Bashro wants to know how much profit is lost by charging a single price. Assume that the company can
implement perfect price discrimination (first degree) by charging each consumer group a different price.
Find: (i) The optimal price for each group; (ii) Production quantity per group; and (iii) The associated
profit.
Sample Solution
