ECON 4350/6350 Hour Exam #2

Transcription

1 Professor Atkinson Fall 2016 ECON 4350/6350 Hour Exam #2 Name. 1. General questions on price discrimination: a. Give the complete definition of price discrimination. I would divide this into 3 parts. You may use more or fewer parts so long as you provide a complete definition b. Regardless of whether a monopolist uses first, second, or third-degree price discrimination, what is the fundamental reason that a firm engages in price discrimination? 1

2 2. HHI Index Calculation. a. Using the 2010 Merger Guidelines, based soley on the post-merger HHI and the change in the HHI, would the DOJ challenge a merger between firms 8 and 7? To answer this you have to compute the pre-merger HHI, the postmerger HHI, and the change in the HHI below in the table. Then, using these figures, because the post-merger HHI= and the change in the HHI=, the DOJ will most likely this merger. Also circle one of these options for the post-merger status of the industry:unconcentrated, moderately concentrated, or highly concentrated. Pre-Merger Post-Merger Firm s i s 2 i s i s 2 i b. What is the major justification for a merger that the DOJ may consider, even if the HHI test indicates excessive monopoly power? c. What is the 4-firm concentration ratio based on the pre-merger set of firms? 2

3 3. Third degree price discrimination: a. Finish the following diagram illustrating third degree price discrimination. Draw in MR 1 and MR 2. Label P 1, Q 1, P 2, and Q 2. What is the relationship between price and elasticity of demand? b. Label the areas of welfare loss if any as DW L 1 and DW L 2 in each market. c. Is the welfare loss always greater or less than that under a single-price monopoly or do we not know in general?. d. If the elasticities of the two groups are identical, what is true about the prices the monopolist charges each?. e. What is always true about MR 1 and MR 2 at the level of output produced in each market?. f. Consider prices for Disneyland in California. California residents get a discount. Is this an example of third-degree price discrimination? Why would Disney use such a scheme?. g. Is there a welfare loss not associated with price for lower prices for those who go the the Early Bird Special on Black Friday?. What is it?. 3

4 4. Assume a single price monopolist. Indicate with P M, Q M the optimal price and quantity. Shade in profits and label them as π. Indicate the area of dead-weight loss as DWL. 5. First-Degree Price Discrimination a. Indicate the MR curve (be careful here) and the total amount sold, Q. Label the area of dead-weight loss (DWL) and of consumer surplus (CS) that is captured by the monopolist. If any of these are zero, so indicate. Indicate the transfer from consumer to producer relative to competition. Label the profits as π. 4

5 6. Second-degree price discrimination with a single consumer type. a. Shade in the entry fee in this case. b. At what price are all units sold?. c. Is output the same as with perfect competition?. d. Are profits larger or smaller than with a single-price monopolist?. e. How do profits compare to those under first-degree price discrimination?. 7. Second-degree price discrimination with two consumer types and the same usage fee (where all consumers self-select). Assume that I charge different entry fees but the same usage fee, P M. a. Shade in and label the entry fee for each consumer type. b. Why is this system infeasible?. 5

6 8. Second-degree price discrimination with two two-part tariffs. In the following diagram, I have indicated entry fees of T 1 and T 2. a. Draw in linear price schedules for T 1 that has a slope of 1 and for T 2 that has a slope of zero. What is the break-even point.. Compute this algebraically. Label each schedule. b. If I consume at x 1 which schedule would I choose? c. If I consume at x 2 which schedule would I choose? d. Can I successfully employ a two-part tariff where T 2 > T 1 and the marginal cost for tariff 2 is greater than the marginal cost for tariff 1?. Why or why not?. f. Give two examples of second degree price discrimination with two two-part tariffs that are feasible (you can include systems where the entry fee for one group is zero)

7 9. Second-degree price discrimination with a single two-part tariff and two customer types. The demand curve for the first type is D 1 and for the second type is D 2. a. What is the C.S. for type 1?. b. What is the C.S. for type 2?. c. I can charge only one entry fee. It cannot be greater than the C.S. for type 1 consumers or else they will drop out. However, I want to capture some of area F which belongs to type 2 consumers. So I set the usage price at P a. d. Since this would cause all type 1 consumers to drop out, what approximate amount of a rebate on the entry fee do I need to give to type 1 consumers to keep them from dropping out? (pick a rectangle in the diagram). e. All of this implies that with the sale of printers and printer cartridges (which hold the toner) that the price of the printer will be its marginal cost while the price of the printer cartridge will its marginal cost. 7