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1.Suppose you have two types of customers. Type 1 customers typically purchases your firm’s product in bundles of 100 units, while type 2 customers typically purchase less than 50 units. The cost of producing one unit is \$1 plus packaging costs. Packaging costs \$1 per unit for small orders, but only \$10 for a bundle of 100 units. Finally, suppose type 1 buyers have a price elasticity of demand equal to -2, while type 2 buyers have an elasticity equal to -1.25. What price will you charge each type of buyer?

2.Suppose your firm produces electricity by burning coal. Currently it buys central Appalachia 12,500 BTU per ton coal at the market price of \$52 per ton. The Board of Directors has informed you that currently the average cost of producing that coal is only \$35 per ton. They therefore are considering buying the mine because this would save them \$17 per ton of coal burned. (Each 500 megawatt power plant your firm owns burns about 1.4 million tons of coal per year.) They have asked you whether this is a good idea. What do you say?

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