Managerial Economics Assignment: Pricing, Costs, and Profit Analysis

This document presents a solution to a Managerial Economics assignment focusing on pricing strategies and profit maximization in different scenarios. The solution begins by analyzing the demand curve for LogCo and determining the optimal price per ton to maximize profits, assuming no price discrimination. The analysis then explores how changes in transportation costs and the introduction of volume discounts would affect the pricing strategy. Finally, the assignment examines how a change in the number of units affects the profit. The solution includes calculations of costs, prices, and profits under various conditions, including the impact of competitors and different pricing structures, ultimately aiming to determine the most profitable approach for LogCo.

Managerial Economics

Table of Contents
• Scenario 1
• Scenario 2
• Scenario 3

Scenario 1
Question 1: What does the demand curve for
LogCo look like? Please draw it.

Scenario 1
Question 2: Assuming LogCo does not price discriminate (i.e. charges the
same price per ton to all customers), what price should LogCo charge per ton
to maximize profits.
Units
Cost per
unit Cost
Price per
unit Price Profit
410 $75 $30,750 $100 $41,000 $10,250
180 $50 $9,000 $100 $18,000 $9,000
190 $70 $13,300 $100 $19,000 $5,700
$24,950
At $100 per ton price; LogCo receives
maximum profit of $24,950
Question 3: If the Northern river cargo ship company Miritituba-Barcarena would
respond to any loss of profitable volumes due to LogCo pricing, would that affect
your price/ton?
No, that would not affect price/ton.

Scenario 2
Question 4: How would that change your price per ton, if at all? (note: in reality there are other
companies so the company uses structured pricing and does not engage in take-it-or-leave it
negotiations). You can only decide on a price per ton.
The price per ton will change accordingly based on total cost beard by three farmers if they
transport grains through trucks. The price per ton are based on total cost of inland truck transport
– cost of transportation to RTE.
Question 5: Imagine you could now use a volume discount mechanism (Eg. A price of R$P for the
first x tons, a discount of R$D1/t and hence a price of R$(P-D1) for a volume exceeding x tons and
yet another deeper discount of R$D2/t and hence a price of R$(P-D2) for a volume exceeding y
tons next, what would that discount structure be (i.e. what is (x, D1) and (y,D2)?
Units
Cost per
unit Cost Price per ton Price Profit
410 $75 $30,750 $185 $75,850 $45,100
180 $50 $9,000 $140 $25,200 $16,200
190 $70 $13,300 $100 $19,000 $5,700
$67,000
Units Discount structure Price per ton after discount
100 --- $100.00
200 1% $99.00
300 2% $98.00
400 5% $95.00
More than
500
5%+10% of the quantity
exceeding 500

Scenario 3

Scenario 3
The profit will increase by $700
Units Cost per unit Cost Price per ton Price Profit
430 $75 $32,250 $185 $79,550 $47,300
130 $50 $6,500 $140 $18,200 $11,700
290 $70 $20,300 $100 $29,000 $8,700
$67,700