SCENARIO 1 (5.5 points):

Question 1: What does the demand curve for LogCo look like? Please draw it. (2 points)

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. (2 points)

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? (1.5 points)

SCENARIO 2 (4 points)

Imagine that customers A, B and C were to be acquired by one company (say Cargill) so that A, B and C

are now just different farming and harvesting locations from which that customer originates grains.

Question 4: How would that change your price per ton, if at all? (2 points)

Note that you cannot engage in take-it-or leave it negotiations. You can only set a price per ton (and

not make it conditional on, say, using Logco for all of Cargill’s volume)

The rationale for this (which you can ignore if it confuses you) is a follows: In reality, LogCo has other

buyers (other than Cargill) and hence has a price policy rather than negotiated pricing.

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)? (2 points)

SCENARIO 3 (4.5 points)

Imagine now that Cargill wants to transport 430 Ktons from location A (instead of 410Ktons), 130

Ktons (instead of 180 Ktons) from location B and 290 (instead of 190) Ktons from location C, how

does that affect your answers to questions 1, 2 and 3? (1.5 points each)