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Solution Manual for Managerial Economics 8th
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CHAPTER TWO

OPTIMAL DECISIONS USING

MARGINAL ANALYSIS

OBJECTIVES

1. To introduce the basic economic model of the firm (A Simple Model of

the Firm)
- The main focus is on determining the firm’s profit-maximizing level
of output.
- The main assumption is that there is a single product (or multiple,
independent products) with deterministic demand and cost.

2. To depict the behavior of price, revenue, cost, and profit as output

varies. (A Microchip Manufacturer)

3. To explain the notion of marginal profit (including its relationship to

calculus) and show that maximum profit occurs at an output such that
marginal profit equal zero. (Marginal Analysis)

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4. To reinterpret the optimality condition in terms of the basic
components, marginal revenue and marginal cost. (Marginal Revenue
and Marginal Cost)

5. To illustrate the uses of sensitivity analysis. (Sensitivity Analysis)

TEACHING SUGGESTIONS

I. Introduction and Motivation

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A. This is a “nuts and bolts” chapter. Because it appears up front in the
text, it’s important to explain the motivation and assumptions. It is a
good idea to remind students of the following points.

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1) The model of the firm is deliberately simplified so that its logic is laid
bare. Many additional complications will be supplied in later chapters.
The key simplifications for now are:

• The model is of a generic firm. Although microchips are chosen to

make the discussion concrete, there is no description of the kind of
market or the nature of competition within it. The description and
analysis of different market structures comes in Chapters 7 through 10.

• Profit is the sole goal of the firm; price and output are the sole decision
variables.

• The description of demand and cost is as “bare bones” as it gets. The

demand curve and cost function are taken as given. (How the firm
might estimate these are studied in Chapters 3 through 6.)

B. In general, our policy is to use extended decision examples, different

than the ones in the text, to illustrate the most important concepts. (Going
over the same examples pushes the boredom envelope.) In the present
chapter, we make an exception to this rule. It is important to make sure
that students with different economic and quantitative backgrounds
all get off roughly on the same foot. Reviewing a familiar example
(microchips) makes this much easier.

II. Teaching the “Nuts and Bolts”

A. Graphic Overview. The text presents the revenue, cost, and profit
functions in three equivalent forms: in tables, in graphs, and in equations.
In our view, the best way to convey the logic of the relationships is via
graphs. (The student who craves actual numbers can get plenty of
them in the text tables.) Here is one strategy for teaching the nuts and
bolts:

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1. Using the microchip example, depict the demand curve, briefly note its
properties and demand equation (in both forms).

2. Next focus on revenue, noting the tradeoff between price and quantity.
Present and justify the revenue equation. Graph it and note its
properties.

3. Repeat the same process with the cost function (reminding students
about fixed versus variable cost). At this point, your blackboard graph
should be a copy of Figure 2.8. Steps 1-3 should take no more than 20
minutes.

4. Since the gap between the revenue and cost curves measures profit, one
could find the optimal output by carefully measuring the maximum gap
(perhaps using calipers). Emphasize that marginal analysis provides a
much easier and more insightful approach. Point out the economic
meaning of marginal cost and marginal revenue. Note that they are the
slopes of the respective curves.

5. Next argue that the profit gap increases (with additional output) when
MR > MC but narrows when MR < MC. (On the graph, select
quantities that are too great or too small to make the point.) Identify
Q* where the tangent to the revenue curve is parallel to the slope of the
cost function. In short, optimal output occurs where MR = MC.

B. Other Topics. The approach in part A provides a simple way of

conveying the basic logic of marginal analysis using the components of
MR and MC. Once this ground is covered, the instructor should
emphasize other basic points:
1. The equivalence between Mπ = 0 and MR = MC.
2. Calculus derivations of Mπ, MR, and MC.
3. The exact numerical solution for the microchip example.
4. The graphs of MR and MC and an exploration of comparative statics
effects (shifts in the curves) and the effects on Q*.

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C. Applications. Besides the applications in the text, the following
problems are recommended: Problem 1 (a quick but important check),
Problems 6, 7 and 9 (numerical applications), Problem 11 (the general
solution), and Problem 12. (If the class has a good grasp of this last
problem, nothing else will seem difficult.)

Here is a stylized example that nicely illustrates marginal analysis.

1. SITING A SHOPPING MALL

A real-estate developer is planning the construction of a large

shopping mall in a coastal county. The question is where to locate it.
To help her in the decision, the developer has gathered a wealth of
information, including the stylized “map” of the region in the
accompanying figure. The county’s population centers run from west
to east along the coast (these are labeled A to H), with the ocean to
the north. Since available land and permits are not a problem, the
developer judges that she can locate the mall anywhere along the
coast, that is, anywhere along line segment AH. In fact, the mall
would be welcome in any of the towns due to its potential positive
impact on the local economy.
According to an old adage, “The three most important factors in the
real-estate business are location, location, and location.” Accordingly,
the developer seeks a site that is proximate to as many potential
customers as possible. A natural measure of locational convenience is
the total travel miles (TTM) between the mall and its customer
population. Thus, Figure 2.1 notes the distances between towns in the
county. It also shows the potential number of customers per week in
each town. The developer’s key question is: Where along the coast
should the mall be located to minimize the total travel miles?

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Figure 1 Locating a Shopping Mall
Number of Customers per week (thousands)
15 10 10 10 5 20 10 15
West East
A| B C D E F G H
3.0 3.5 2.0 2.5 4.5 2.0 4.5
Distance between Towns (miles)

Answer
We could try to find the best location by brute force – by selecting
alternative sites and computing the TTM for each one. For example, the
TTM at the possible site labeled X (1 mile west of town C) is

(5.5)(15) + (2.5)(10) + (1.0)(10) + (3.0)(10)

+ (5.5)(5) + (10.0)(20) + (12.0)(10) + (16.5)(15) = 742.5.

The TTM is found by multiplying the distance to the mall by the

number of trips for each town (beginning with A and ending with H)
and summing. However, the method requires a good deal of
computational effort while offering no guarantee that an optimal
location (i.e., one that has the lowest TTM of all possible candidates)
will be found. The method only claims that its choice is the best of
the limited number of candidates for which TTMs have been computed.
It is far easier to determine the mall’s optimal location using
marginal analysis. Hint: Begin with an arbitrary location, say, point
X. (Do not compute its TTM.) Instead, consider a small move to a
nearby site, such as town C. Then compute the change in the TTM of
such a move.
Marginal analysis identifies the optimal location as town E. The
demonstration involves a number of steps following a very simple

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 logic. First consider the move from location X to Town C. Making
this move, we see that TTM must decline. The eastward move means
a 1-mile reduction in travel distance for all customers at C or farther
east (70,000 trip-miles in all). Therefore, the TTM is reduced by this
amount. Of course, travel distances have increased for travelers at or
to the west of X. For these customers, the TTM increase is 25,000
trip-miles. Therefore, the net overall change in TTM is -70,000 +
25,000 = -45,000 trip-miles. Total TTM has declined because the site
moved toward a greater number of travelers than it moved away from.
Town C, therefore, is a better location than site X.
Because the original move was beneficial, we try moving farther
east, say, to town D. Again, the move reduces the TTM. (Check this.)
What about a move east again to town E? This brings a further
reduction. What about a move to town F? Now we find that the TTM
has increased. (By how much?) Moreover, any further moves east
would continue to increase the TTM. Thus, town E is the best site.
The subtlety of the method lies in its focus on changes. One need
never actually calculate a TTM (or even know the distances between
towns) to prove that town E is the optimal location. (We can check
that town E’s TTM is 635.) One requires only some simple reasoning
about the effects of changes.

Here is a second application.

2. a. For five years, an oil drilling company has profitably operated in the
state of Alaska (the only place it operates). Last year, the state
legislature instituted a flat annual tax of $100,000 on any company
extracting oil (or natural gas) in Alaska. How would this tax affect the
amount of oil the company extracts? Explain.

b. Suppose instead that the state imposes a well-head tax, let’s say a tax of
$10.00 on each barrel of oil extracted. Answer the questions of part a.

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 c. Finally, suppose that the state levies a proportional income tax (say
10% of net income). Answer the questions of part a. What would be
the effect of a progressive tax?

d. Now suppose that the company has a limited number of drilling rigs
extracting oil at Alaskan sites and at other sites in the United States.
What would be the effect on the company’s oil output in Alaska if the
state levied a proportional income tax as in part c?

Answer
a. This tax acts as a fixed cost. As long as it remains profitable to produce
in Alaska, the tax has no effect on the firm’s optimal output.

b. The well-head tax increases the marginal cost of extraction by $10.00

per barrel. The upward shift in MC means the new intersection of MR
and MC occurs at a lower optimal level of output.

c. The income tax (either proportional or progressive) has no effect on the

company’s optimal output. For instance, suppose that the company’s
after-tax income is:  = .9(R-C) under a 10% proportional tax. To
maximize its after-tax income, the best the company can do is to continue
to maximize its before-tax income. Another way of seeing this is to note
that the tax causes a 10% downward shift in the firm’s MR and MC
curves. With the matching shift, the new intersection of MR and MC
is at the same optimal quantity as the old intersection.

d. When the firm operates in multiple states with limited drilling rigs,
using a rig in Alaska means less oil is pumped (and lower profit is earned)
somewhere else. There is an opportunity cost to Alaskan drilling. Thus,
one can argue that before the tax, the company should have allocated
rigs so as to equate marginal profits in the different states. With the
tax, the marginal profit in Alaska is reduced, prompting the possible
switch of rigs from Alaska to other (higher marginal profit) locations.

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D. Mini-case: Apple Computer in the Mid-1990s
The mini-case reproduced on the next page provides a hands-on
application of profit maximization and marginal analysis.

Answer
a. Clearly, the period 1994-1995 was marked by a significant adverse
shift in demand against Apple due to major enhancements of
competing computers: lower prices, better interfaces (Windows), sales
to order (Dell), and more abundant software.
b. Setting MR = MC implies 4,500 - .3Q = 1,500, so Q* = 10,000 units
and P = $3,000. Given 1994’s state of demand, Apple’s 1994
production strategy was indeed optimal.
c. In 1995, demand and MR have declined significantly. Now, setting
MR = MC implies 3,900 - .3Q = 1,350, so Q* = 8,500 units and P =
$2,625. Apple should cut its price and its planned output.

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 Apple Computer in the Mid 90s

Between 1991 and 1994, Apple Computer engaged in a holding action in the desktop
market dominated by PCs using Intel chips and running Microsoft’s operating system.1
In 1994, Apple’s flagship model, the Power Mac, sold roughly 10,000 units per month at
an average price of $3,000 per unit. At the time, Apple claimed about a 9% market share
of the desktop market (down from greater than 15% in the 1980s).

By the end of 1995, Apple had witnessed a dramatic shift in the competitive environment.
In the preceding 18 months, Intel had cut the prices of its top-performing Pentium chip by
some 40%. Consequently, Apple’s two largest competitors, Compaq and IBM, reduced
average PC prices by 15%. Mail-order retailer Dell continued to gain market share via
aggressive pricing. At the same time, Microsoft introduced Windows 95, finally offering
the PC world the look and feel of the Mac interface. Many software developers began
producing applications only for the Windows operating system or delaying development
of Macintosh applications until months after Windows versions had been shipped.
Overall, fewer users were switching from PCs to Macs.

Apple’s top managers grappled with the appropriate pricing response to these competitive
events. Driven by the speedy new PowerPC chip, the Power Mac offered capabilities and
a user-interface that compared favorably to those of PCs. Analysts expected that Apple
could stay competitive by matching its rivals’ price cuts. However, John Sculley, Apple’s
CEO, was adamant about retaining a 50% gross profit margin and maintaining premium
prices. He was confident that Apple would remain strong in key market segments – the
home PC market, the education market, and desktop publishing.

Questions.

1. What effect (if any) did the events of 1995 have on the demand curve for Power Macs?
Should Apple preserve its profit margins or instead cut prices?

2. a) In 1994, the marginal cost of producing the Power Mac was about $1,500 per unit,
and a rough estimate of the monthly demand curve was: P = 4,500 - .15Q. At the time,
what was Apple’s optimal output and pricing policy?
b) By the end of 1995, some analysts estimated that the Power Mac’s user value (relative
to rival PCs) had fallen by as much as $600 per unit. What does this mean for Apple’s
new demand curve at end-of-year 1995? How much would sales fall if Apple held to its
1994 price? Assuming a marginal cost reduction to $1,350 per unit, what output and price
policy should Apple now adopt?

1This account is based on J. Carlton, “Apple’s Choice: Preserve Profits or Cut Prices,”
The Wall Street Journal, February 22, 1996, p. B1.

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 ADDITIONAL MATERIALS

I. Readings

A. Lowry, “Is Uber’s Surge-Pricing an Example of High-Tech Gouging?”

The New York Times Magazine, January 12, 2014, pp. 18-20.

J. Jargon and E. Glazer, “Crisis Quickens at Quiznos,” The Wall Street

Journal, December 7, 2013, p. B1.

J. Jargon, “Battle over Menu Prices Heats Up,” The Wall Street Journal,
August 23, 2013, p. B6.

R. H. Frank, “How can they Charge that? (and other questions),” The New
York Times, May 12, 2013, p. BU8.

A. Gasparro, “Amid Falling Profit, McDonald’s to Revisit ‘Dollar Menu’,”

The Wall Street Journal, October 20, 2012.

M. Kaminski, “An Airline that Makes Money, Really,” The Wall Street
Journal , February 4, 2012, p. A13.

M. Cieply, “For Movie Stars, the Big Money is now Deferred,” The New
York Times, March 4, 2010, p. A1.

N. S. Riley, “Other People’s Money,” The Wall Street Journal, October 3,

2008, p. W11.

R. Chittum, “Price Points,” The Wall Street Journal, October 30, 2006, p.
R7. (How providers of consumer services compare extra revenues and extra
costs.)

T. H. Davenport, “Competing on Analytics,” Harvard Business Review,

January 2006.

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C. Oggier and E, Fragniere, and J. Stuby, “Nestle Improves its Financial
Reporting with Management Science,” Interfaces, July-August, 2005, pp.
271-280.

II. Case

Colgate-Palmolive Co.: The Precision Toothbrush (9-593-064), Harvard

Business School, 1993. Teaching Note (5-595-025). (Explores profit
analyses of alternative launch strategies.)

III. Quips and Quotes

Small mistakes are the stepping stones to large failures.

There was an old saying about our small town. Our town’s population
never changed. Every time a baby was born a man left town. (Does this say
something about the balance of marginal changes at an optimum?)

The head of a small commuter plane service reported that as costs rose, the
company’s breakeven point rose from 6 to 8 to 11 passengers. “I finally
figured we were in trouble since our planes only have 9 seats.”

If you laid all of the economists in the world end to end, they still wouldn’t
reach a conclusion. (George Bernard Shaw)

An economist is a person who is very good with numbers but who lacks the
personality to be an accountant.

The age of chivalry is gone; that of sophisters, economists, and calculators

has succeeded. (Edmund Burke)

Please find me a one-armed economist so we will not always hear, “On the
other hand . . .” (Herbert Hoover)

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 Answers to Back-of-the-Chapter Problems

1. This statement confuses the use of average values and marginal values.
The proper statement is that output should be expanded so long as
marginal revenue exceeds marginal cost. Clearly, average revenue is
not the same as marginal revenue, nor is average cost identical to
marginal cost. Indeed, if management followed the average-
revenue/average-cost rule, it would expand output to the point where
AR = AC, in which case it is making zero profit per unit and, therefore,
zero total profit!

2. The revenue function is R = 170Q - 20Q2. Maximizing revenue means

setting marginal revenue equal to zero. Marginal revenue is: MR =
dR/dQ = 170 - 40Q. Setting 170 - 40Q = 0 implies Q = 4.25 lots. By
contrast, profit is maximized by expanding output only to Q = 3.3 lots.
Although the firm can increase its revenue by expanding output from
3.3 to 4.5 lots, it sacrifices profit by doing so (since the extra revenue
gained falls short of the extra cost incurred.)

3. In planning for a smaller enrollment, the college would look to answer

many of the following questions: How large is the expected decline in
enrollment? (Can marketing measures be taken to counteract the drop?)
How does this decline translate into lower tuition revenue (and perhaps
lower alumni donations)? How should the university plan its down-
sizing? Via cuts in faculty and administration? Reduced spending on
buildings, labs, and books? Less scholarship aid? How great would be
the resulting cost savings? Can the university become smaller (as it must)
without compromising academic excellence?

4. a.  = PQ – C = (120 - .5Q)Q - (420 + 60Q + Q2) = -420 + 60Q -

1.5Q2. Therefore, M = d /dQ = 60 - 3Q = 0. Solving yields Q* = 20.

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 Alternatively, R = PQ = (120 - .5Q)Q = 120Q - .5Q2. Therefore, MR =
120 – Q. In turn, C = -420 + 60Q + Q2, implying: MC = 60 + 2Q.
Equating marginal revenue and marginal cost yields: 120 - Q = 60 +
2Q, or Q* = 20.

b. Here, R = 120Q; it follows that MR = 120. Equating MR and MC

yields: 120 = 60 + 2Q, or Q* = 30.

5. a. The firm exactly breaks even at the quantity Q such that  = 120Q -
[420 + 60Q] = 0. Solving for Q, we find 60Q = 420 or Q = 7 units.

b. In the general case, we set:  = PQ - [F + cQ] = 0. Solving for Q, we

have: (P - c)Q = F or Q = F/(P - c). This formula makes intuitive sense.
The firm earns a margin (or contribution) of (P - c) on each unit sold.
Dividing this margin into the fixed cost reveals the number of units
needed to exactly cover the firm’s total fixed costs.

c. Here, MR = 120 and MC = dC/dQ = 60. Because MR and MC are both

constant and distinct, it is impossible to equate them. The modified rule
is to expand output as far as possible (up to capacity), because MR >
MC.

6. a. If DVDs are given away (P = $0), demand is predicted to be: Q = 1600

- (200)(0) = 1,600 units. At this output, firm A’s cost is: 1,200 +
(2)(1,600) =$4,400, and firm B’s cost is: (4)(1,600) = $6,400. Firm A
is the cheaper option and should be chosen. (In fact, firm A is cheaper
as long as Q > 600.)

b. To maximize profit, we simply set MR = MC for each supplier and

compare the maximum profit attainable from each. We know that MR
= 8 - Q/100 and the marginal costs are MCA = 2 and MCB = 4. Thus,
for firm A, we find: 8 - QA/100 = 2, and so QA = 600 and PA = $5

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 (from the price equation). For firm B, we find QB = 400 and PB = $6.
With Firm A, the station’s profit is: 3,000 - [1,200 + (2)(600)] = $600.
With Firm B, its profit is 2,400 - 1,600 = $800. Thus, an order of 400
DVDs from firm B (priced at $6 each) is optimal.

7. a. The marginal cost per book is MC = 40 + 10 = $50. (The marketing

costs are fixed, so the $10 figure mentioned is an average fixed cost per
book.) Setting MR = MC, we find MR = 150 – 2Q = 50, implying Q* =
50 thousand books. In turn, P* = 150 –50 = $100 per book.

b. When the rival publisher raises its price dramatically, the firm’s
demand curve shifts upward and to the right. The new intersection of
MR and MC now occurs at a greater output. Thus, it is incorrect to try
to maintain sales via a full $15 price hike. For instance, in the case of a
parallel upward shift, P = 165 – Q. Setting MR = MC, we find: MR =
165 – 2Q = 50, implying Q* = 57.5 thousand books, and in turn, P* =
165 – 57.5 = $107.50 per book. Here, OS should increase its price by
only $7.50 (not $15).

c. By using an outside printer, OS is saving on fixed costs but is incurring

a higher marginal cost (i.e., printing cost) per book. With a higher
marginal cost, the intersection of MR and MC occurs at a lower
optimal quantity. OS should reduce its targeted sales quantity of the
text and raise the price it charges per book. Presumably, the fixed cost
savings outweighs the variable cost increase.

8. The fall in revenue from waiting each additional month is: MR = dR/dt
= -8. The reduction in cost of a month’s delay is: MC = dC/dt = -20 +
.5t. The optimal introduction date is found by equating MR and

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 MC: -8 = -20 + .5t, which implies: .5t = 12 or t* = 24 months. The
marketing manager’s 12-month target is too early. Delaying 12 more
months sacrifices revenue but more than compensates in reduced costs.

9. a. The MC per passenger is $20. Setting MR = MC, we find 120 - .2Q =

20, so Q = 500 passengers (carried by 5 planes). The fare is $70 and
the airline’s weekly profit is: $35,000 - 10,000 = $25,000.

b. If it carries the freight, the airline can fly only 4 passenger flights, or
400 passengers. At this lower volume of traffic, it can raise its ticket
price to P = $80. Its total revenue is (80)(400) + 4,000 = $36,000.
Since this is greater than its previous revenue ($35,000) and its costs
are the same, the airline should sign the freight agreement.

10. The latter view is correct. The additional post-sale revenues increase
MR, effectively shifting the MR curve up and to the right. The new
intersection of MR and MC occurs at a higher output, which, in turn,
implies a cut in price. (Of course, one must discount the additional
profit from service and supplies to take into account the time value of
money.)

11. Setting MR = MC, one has: a – 2bQ = c, so that Q = (a - c)/2b. We

substitute this expression into the price equation to obtain:
P = a - b[(a - c)/2b] = a - (a - c)/2 = a/2 + c/2 = (a + c)/2.
The firm’s optimal quantity increases after a favorable shift in demand −
either an increase in the intercept (a) or a fall in the slope (b). But quantity
decreases if it becomes more costly to produce extra units, that is., if the
marginal cost (c) increases. Price is raised after a favorable demand shift
(an increase in a) or after an increase in marginal cost (c). Note that only
$.50 of each dollar of cost increase is passed on to the consumer in the
form of a higher price.

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*12. The Burger Queen (BQ) facts are P = 3 - Q/800 and MC = $.80.
a. Set MR = 0 to find BQ’s revenue-maximizing Q and P. Thus, we have
3 - Q/400 = 0, so Q = 1,200 and P = $1.50. Total revenue is $1,800
and BQ’s share is 20% or $360. The franchise owner’s revenue is
$1,440, its costs are (.8)(1,200) = $960, so its profit is $480.

b. The franchise owner maximizes its profit by setting MR = MC. Note

that the relevant MR is (.8)(3 - Q/400) = 2.4 - Q/500. After setting MR
= .80, we find Q = 800. In turn, P = $2.00 and the parties’ total profit
is (2.00 - .80)(800) = $960, which is considerably larger than $840, the
total profit in part (a).

c. Regardless of the exact split, both parties have an interest in

maximizing total profit, and this is done by setting (full) MR equal to
MC. Thus, we have 3 - Q/400 = .80, so that Q = 880. In turn, P =
$1.90, and total profit is: (1.90 - .80)(880) = $968.

d. The chief disadvantage of profit sharing is that it is difficult, time-

consuming, and expensive for the parent company to monitor the
reported profits of the numerous franchises. Revenue is relatively easy
to check (from the cash register receipts) but costs are another matter.
Individual franchisees have an incentive to exaggerate the costs they
report in order to lower the measured profits from which the parent’s split
is determined. The difficulty in monitoring cost and profit is the main
strike against profit sharing.

Discussion Question
Suppose the firm considers expanding its direct sales force from 20 to,
say 23 sales people. Clearly, the firm should be able to estimate the
marginal cost of the typical additional sales person (wages plus fringe
benefits plus support costs including company vehicle). The additional

John Wiley & Sons

2-18
 net profit generated by an additional sales person is a little more
difficult to predict. An estimate might be based on the average
profitability of its current sales force. A more detailed estimate might
judge how many new client contacts a salesperson makes, historically
what fraction of these contacts result in new business, what is the
average profit of these new accounts, and so on. If the marginal profit of
a sales person is estimated to be between $100,000 and $120,000 while
the marginal cost is $85,000, then the firm has a clear-cut course of action,
namely hire the additional 1, 2, or 3 employees.

Spreadsheet Problems

S1. a and b. Setting MR = MC implies: 800 – 4Q = 200 + Q. Therefore,

Q* = 120 parts and P* = $560.

c. To confirm these values on a spreadsheet, we maximize cell F7 by

changing cell B7. Maximum profit in cell F7 is $16,000.

S2. a. Given  = 20[A/(A+8)] –A, it follows that M = 20[8/(A+8)2] – 1.

2
Setting M = 0 implies (A+8) = 160, or A* = $4.649 million.

b. Confirm this value on your spreadsheet by maximizing cell F7 by

changing cell C7. Maximum profit in F7 is $2.702 million.

S3. a. To confirm these values on our spreadsheet, we maximize cell F7 by

changing cell B7. The optimal sales volume is: Q* = 2.4 million
units and the optimal price is P* = $210. Amazon’s margin on each
reader is: 210 – 126 = $84, and its maximum profit (or, more
precisely contribution) is $201.6 million.

b. We extend the spreadsheet by including contribution from sales of

e-books ($100 per kindle sold) in cell G7 and add this to Kindle

John Wiley & Sons

2-19
 profit to compute total profit in cell H7. Maximizing total profit, we
find the new optimal solution to be: Q* = 3.829 million units and P*
= $160. (This price is close to current price levels for the Kindle.)
By lowering price, Amazon increases its Kindle sales. The increased
profit from e-books more than makes up for reduced Kindle profit.
Note that e-book profit is almost three times Kindle profit.
Amazon’s total profit comes to some $513.0 million.

Appendix Problems

1. When tax rates become very high, individuals will make great efforts
to shield their income from taxes. Furthermore, higher taxes will
discourage the taxed activities altogether. (In the extreme case of a
100% tax, there is no point in undertaking income-generating
activities.) Thus, a higher tax rate mean a smaller tax base.
Increasing the tax rate from zero, the revenue curve first increases,
eventually peaks, and then falls to zero (at a 100% tax). Thus, the
curve is shaped like an upside-down U.

2. a. B(t) = 80 - 100t. Therefore, R = 80t - 100t2. Setting MR = dR/dt = 0,

we find: 80 - 200t = 0, or t = .4.

b. B(t) = 80 - 240t2. Therefore, R = 80t - 240t3. Setting MR = dR/dt =

0, we find: 80 - 720t2 = 0. Therefore, t2 = 1/9, or t = 1/3.

c. B(t) = 80 - 80t.5. Therefore, R = 80t - 80t1.5. Setting MR = dR/dt = 0,

we find: 80 - 120t.5 = 0. Thus, t.5 = 2/3, or t = 4/9.

John Wiley & Sons

2-20
3. a.  = 20x - x2 + 16y - 2y2. Setting d/dx = 0 and d/dy = 0 implies
x = 10 and y = 4.

b. The Lagrangian is L =  + z(8 - x - y). Therefore, the optimality

conditions are: 20 - 2x - z = 0, 16 - 4y - z = 0, and x + y = 8. The
solution is x = 6, y = 2, and z = 8.

c. The Lagrangian is L =  + z(7.5 - x - .5y). Therefore, the optimality

conditions are: 20 - 2x - z = 0, 16 - 4y - .5z = 0, and x + .5y = 7.5.
The solution is x = 6, y = 3, and z = 8.

John Wiley & Sons

2-21
Another random document with
no related content on Scribd:
je ne saisirais pas le premier prétexte venu pour me dégager de ma
parole.
A ces mots, je partis d’un éclat de rire homérique, et m’étant
installé dans un fauteuil, aussi loin d’elle que possible : — C’est trop
fort, ma chère, lui dis-je. Vous verrez que le criminel, c’est moi ; que
vous avez à vous plaindre de mes trahisons et de mes perfidies ;
que l’autre soir, après vous avoir tendrement embrassée, je suis allé
tout courant offrir à une autre femme mon cœur et mes lèvres. Ne
pourriez-vous être sincère une fois dans votre vie et m’accorder que,
si vous êtes plus sensible que tendre, vous êtes encore plus
ambitieuse que sensible ? Le secret de votre conduite est dans le
mot de la bohémienne. Convenez que les femmes de votre
caractère ont la manie de courir deux gibiers à la fois, et que vous
vous êtes amusée à coucher en joue tour à tour un lapin, qui est
votre serviteur, et un lièvre qui s’est appelé tantôt le baron Grüneck,
tantôt M. de Mauserre. Le lièvre a gagné pays ; je vous défie bien de
rattraper le lapin.
Elle jeta un cri d’horreur, me somma de me taire, de ne pas
insulter à son amour ; pourtant elle finit par avouer qu’il y avait une
part de vérité dans mon explication. — Eh bien ! oui, je la confesse,
s’écria-t-elle d’une voix déchirante, hier encore j’avais deux âmes qui
se combattaient comme en champ clos. Dieu soit loué, l’une a
succombé, le malheur l’a foudroyée ; il n’y a plus de vivant en moi
que l’âme qui vous aime, qui est à vous tout entière.
Trois secondes après, avant que je m’en fusse avisé, elle s’était
agenouillée à mes pieds, et j’eus beau me débattre, elle s’empara de
vive force de mes deux mains. Que ne puis-je vous rendre les
emportements de son éloquence ! Elle me fit les déclarations les
plus tendres, les plus passionnées, que ma modestie se refuse à
répéter, à savoir qu’elle m’adorait, qu’elle avait eu envers moi des
torts inqualifiables ; — que, si je lui faisais grâce, elle emploierait sa
vie à les racheter ; que je serais aimé comme jamais homme ne
l’avait été ; que je ne me doutais pas des trésors d’enthousiasme et
de dévouement que renfermait son cœur ; qu’elle ne vivrait, ne
respirerait que pour moi ; que je serais son tout, son univers, son
idéal et son dieu.
Au risque d’être taxé par vous de fatuité, j’oserai avancer qu’en
ce moment elle était sincère ; j’ajoute que, sincère ou non, elle était
étrangement belle, d’une beauté qui tenait tout à la fois du diable et
de l’ange. La douleur et la passion semblaient modeler son visage
comme le doigt du sculpteur la terre molle qu’il façonne ; il y avait sur
son cou, sur ses joues, sur son front, un jeu d’ombres et de lumières
dont je désespère de retrouver le secret. Dans la vivacité de son
action, ses cheveux s’étaient défaits et se répandaient en désordre
sur ses épaules ; sa guimpe aussi avait essuyé quelque avarie et
laissait à mon regard une périlleuse liberté. Elle avait les lèvres
ardentes ; ses yeux noyés ne quittaient pas les miens. Ils me
disaient clairement : — Ne vois-tu pas que je suis à toi ? Fais de moi
ce qu’il te plaira ! — Ils disaient aussi par manière d’a parte : — Si tu
succombes à la tentation, tu me garderas, et je t’épouserai.
Ce fut, madame, un moment critique. J’étais fort ému, je respirais
avec effort, ma tête s’allumait comme une rampe d’opéra, et je ne
sais en vérité comment cette scène aurait fini, quand il arriva tout à
coup… Madame, il arriva tout simplement qu’un des coqs du
château se mit à chanter à gorge déployée dans son pailler, et sa
voix claire, perçante, métallique et guerrière me fit bondir dans mon
fauteuil. Je revis mon père à son lit de mort : il me regardait. Le coq
chanta de nouveau ; j’entendis le tonnelier de Beaune qui me criait :
Tony, la vie est un combat ; défie-toi de tes entraînements ! — Et, le
coq ayant pour la troisième fois sonné sa fanfare, je contemplai
fixement Meta ; il me parut que ses grands yeux limpides
ressemblaient à ces beaux lacs africains aux eaux d’azur, dans
lesquels il y a des crocodiles.
Elle m’observait avec anxiété, se demandant à qui j’en avais. Je
la repoussai doucement, je me remis sur mes pieds, je la contraignis
d’en faire autant ; je la pris par le bras, je traversai la chambre avec
elle, j’ouvris la porte, je lui montrai du doigt le corridor, l’escalier et la
lampe qui les éclairait. Elle eut une défaillance, elle en triompha sur-
le-champ. Froissant ses cheveux dans ses mains, elle me cria d’un
ton prophétique et comme saisie subitement des fureurs d’une
sibylle : — Maudite soit la femme que tu aimeras ! — Cela dit, elle
disparut comme un fantôme.
Trois heures plus tard, elle avait quitté les Charmilles, où son
départ laissait quelques cœurs soulagés et une petite fille tout à fait
inconsolable. En voyant s’ébranler la voiture qui emmenait sa
gouvernante, la pauvre enfant perça l’air de ses cris.
Est-il nécessaire d’ajouter que M. et Mme de Mauserre sont
mariés ? Lulu n’aura plus d’autre institutrice que sa mère, qui depuis
son aventure est devenue un peu moins confiante et un peu plus
matineuse. M. de Mauserre est rentré dans la vie publique par la
députation ; il siége à la chambre dans la partie la plus raisonnable
du centre droit, mais en ayant soin de voter quelquefois contre le
gouvernement. On assurait l’autre jour qu’il était à la veille d’obtenir
un poste considérable.
Une nuit de l’hiver dernier, je faisais route de Lyon à Valence, où
j’allais voir un ami. Je partis de la gare de Perrache seul dans mon
wagon, dont la lampe éclairait faiblement. Je rabattis mon bonnet
fourré sur mes yeux, je m’allongeai sur un coussin, et je
commençais à m’endormir, lorsque à Vienne trois femmes montèrent
dans mon compartiment. A leur costume, je les reconnus pour des
diaconesses protestantes, et par quelques propos, que je saisis à la
volée, je crus comprendre qu’elles se rendaient en Italie pour y
diriger une école évangélique. Elles étaient jeunes et fort jaseuses ;
parlant allemand, elles ne firent pas difficulté de continuer leur
conversation devant moi. Le visage enfoui dans le collet de ma
pelisse, je ne donnais aucun signe de vie ; Dieu sait pourtant que je
les écoutais.
L’une des trois paraissait exercer sur les deux autres le prestige
d’une abbesse, et, quoique sa voix fût douce, elle avait un ton
d’autorité où il entrait une nuance de hauteur. A propos de la
dernière guerre, elle en vint à dire que les Français sont un peuple
aimable, mais très-immoral et très-corrompu ; comme pièce à
l’appui, elle rapporta et déposa qu’elle était entrée comme institutrice
dans une maison française où se trouvait un peintre de grand
renom ; que dès le premier jour il s’était permis de lui faire un aveu à
la hussarde ; que le père de son élève, s’étant déclaré à son tour,
avait tout mis en œuvre pour la séduire ; que ces deux coqs
amoureux et fous de jalousie avaient failli se couper la gorge, et que,
pour se soustraire à leurs obsession, elle s’était vue réduite à
s’enfuir une nuit à travers mille périls, dont la grâce du ciel l’avait
sauvée.
Quand le train atteignit Valence, la conversation avait cessé. Les
deux plus jeunes de ces filles de Sion dormaient du sommeil de
l’innocence ; la troisième, celle qui parlait si bien, les yeux à demi
clos, rêvait à son passé ou à son avenir. Avant de descendre de
wagon, je me penchai vers elle, et à sa vive surprise je lui récitai les
deux premiers vers du Roi de Thulé, que je pris la liberté, — Goethe
me le pardonne ! — de retoucher un peu : « Il y avait à Thulé, lui dis-
je à l’oreille, une petite souris qui mentit jusqu’à son lit de mort. »

Es war ein Maüschen in Thule

Das log bis an das Grab.

Vous me demanderez, madame, si j’y pense encore à cette

souris, et si dans le fond du cœur… Ceci est mon secret ; devinez.
Vous me demanderez aussi ce qu’il faut conclure de mon histoire,
car vous n’aimez pas les histoires qui ne concluent point. La mienne
prouve qu’il est utile de savoir ce que signifie le chant du coq ; si
mon père ne m’avait enseigné cette belle science, je ferais peut-être
aujourd’hui le voyage de la vie avec une compagne bien distinguée,
mais bien dangereuse. Ensuite mon histoire vous explique pourquoi,
en m’offrant la main d’une charmante fille qui a des yeux célestes,
vous m’avez mis en défiance. J’en conviens, les yeux célestes me
font peur ; il y faut regarder de près et jusqu’au fond. Dieu vous
bénisse, madame, vous qui n’avez pas deux âmes, et qu’il nous
préserve à tout jamais des terrains glissants, des chemins à
fondrières, des volontés flottantes, des caractères équivoques, des
cœurs troubles et des consciences subtiles !
FIN
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