# Price Discrimination: Exercises Part 2

Save this PDF as:

Size: px
Start display at page:

## Transcription

1 Price Discrimination: Exercises Part Sotiris Georganas Royal Holloway University of London Problem 1 An economics journal is considering offering a new service which will send articles to readers by . There are two types of potential users, students and professors. Let x denote the number of articles requested by a user. The professors have an inverse demand function p 1 (x) = 1 x and the students have an inverse demand p (x) = 8 x. The marginal cost of sending articles to users is zero. (a) Draw the demand functions. (b) Suppose that the journal can identify the type of use (professor or student). It decides to offer a plan where users can buy a fixed number of articles for a fixed price. What price-quantity combination will the journal offer to each type of user? (c) Now suppose that the journal cannot observe which type any given user is. The journal continues to offer two packages. Suppose that it offers one package which allows up to 8 articles (intended for students) and one package that allows up to 1 articles (intended for professors). What is the highest price that students will be willing to pay for the 8-article package? What is the highest price that the journal can charge for the 1-article package if it offers the 8-article packages at the highest price the students are willing to pay? In this situation, what is the consumer surplus obtained by a professor? (d) Suppose now that the journal decides to restrict the number of articles in the package intended for the students to 6. What is the most the journal could charge for a 6- article package and still get the students to buy it? How much consumer surplus would the professors get from buying this 6-article package? What is now the most the journal could charge for the 1-article package and still get the professors to choose this package? (e) Suppose that there is an equal number of students and professors in the population. Would the journal make larger profits by offering the 8-article or the 6-article package to the students? Solution Problem 1 1

2 (a) Start by drawing the demand curves p 1 (x) = 1 x p x (b) If the journal can identify each user type, then it will first-degree price discriminate. This will involve offering each type of user a package where the quantity is such that the marginal willingness to pay equals the marginal cost. Hence the journal will offer a package that allows up to 1 articles to professors and a package that allows up to 8 articles to students. (In fact, since the marginal cost is zero, the journal could in this case equally well offer unlimited access.) It will charge the professors their entire willingness to pay which is the area under the demand curve from x = up to x = 1. The size of this area is P1 1 1 = = 5 Similarly, it will charge the students their total willingness to pay for 8 articles P = 8 8 = 3 (c) If the journal continues to offer the 8-article package, then the highest willingness to pay for this package by students is still P = 3. In order to work out how much the journal can charge for the 1-article package and still get the professors to choose that package, we first characterize the gross surplus obtained by the professors if they choose the 8-article package. Note that this gross surplus is the area between the two demand curves between x = and x = 8. Formally, this area is 8 ((1 x) (8 x)) dx = 8 dx = 8 dx = 8 = 16

3 Hence, the professors will only choose the 1-article package it it offers a gross surplus of at least 16. We know that the total willingness to pay, by professors, for 1 articles is 5. Hence if the journal charges P 1 = 5 16 = 34 then a professor will obtain the same surplus from buying the 8-article package at the price P = 3 as from buying the 1-article package (d) If the journal restricts the low-quantity package to at most 6 articles, then the most a student would be willing to pay for a package corresponds to the area under the demand curve between x = and x = 6, i.e. P = 6 (8 x) dx = 3 The gross consumer surplus obtained by a professor from buying the low-quantity package corresponds to the area between the two demand curves between x = and x = 6, i.e. 6 ((1 x) (8 x)) dx = 6 dx = 1 The journal can now price the 1-article package at the price that leaves a professor with a gross surplus of 1. Since a professor s total willingness to pay for 1 articles is 5, the journal can now price the 1-article package at P 1 = 38. (e) Suppose now that there is an equal number of students and professors. For simplicity we can think of there being one student and one professor. (If there are N of each, the profits for the N case will just be N times that obtained when N = 1.) Moreover, since marginal costs are zero, we simply need to compare the total revenue in each case. With an 8-article package intended for the students, the student is charged P = 3 while the professor is charged P 1 = 34. Total revenue/profits are then P 1 + P = = 66 When the low quantity package is restricted to 6 articles, the journal charges the student P = 3 and charges the professor P 1 = 38. Total revenue/profits are then P 1 + P = = 68 3

4 which is obviously higher. Note the properties of the solution. The quantity sold to the low-demand group i.e. the students is distorted downwards. Hence for this group there monopoly generates an allocative ineffi ciency. For the professors, there is no allocative ineffi ciency at the optimum the marginal willingness to pay equals the marginal cost. However, the professors obtain some positive consumer surplus. Note also that the price is non-linear in that the price paid per article is 5 by students while it is only 38 by professors. In effect the monopolist is simply offering a non-linear price scheme from which users can self-select a package. The following figure illustrate the two packages and shows how the average price is lower at the 1-article package than at the 6-article package. y x Problem A software company is selling two products: product A (a wordprocessor) and product B (a spreadsheet). The boss of the company is contemplating a marketing strategy that involves bundling the two products together and selling the pair of software products for one price. Suppose that, at present, the company is selling product A at a price of \$ and it is selling product B at a price of \$5. A survey of 1 people who purchased either of these products last year showed that there were three groups of customers. 1. people bought both.. 4 people bought only product A; they would have been willing to pay up to \$1 for product B. 4

5 3. 4 people bought only product B; they would have been willing to pay up to \$1 for product A. Assume that new customers have the same characteristics as the surveyed group. Assume also that the marginal cost of producing extra copies of either product is zero; similarly, the marginal cost of creating a bundle is zero. (a) Assume that the company offers the products separately as well as bundled. What is the highest price that the company can set for the bundle and still induce group (the word-processor users) to buy it? What is the highest price that the company can set for the bundle and still induce group 3 (the spreadsheet users) to buy it? (b) What would be the company s profits on a group of 1 users if it priced the bundle at \$3? What would be the company s profits on a group of 1 users it priced the bundle at \$35? If the company were to offer the bundle, what price should it set? (c) What would profits be without offering a bundle? Should the bundle be offered? (d) Suppose that the company worries about the reliability of the survey. It is clear that there are three groups with the above characteristics. However, the company believes that, out of 1 people, t are of type 1 while (1 t) / are of type and (1 t) / are to type 3. Calculate profits as a function of t assuming that the firm does not bundle. What are profits with the bundle? At what values of t would be be unprofitable to offer the bundle? Solution Problem It is useful to formalize the problem a bit. Let v j i denote the willingness to pay by a consumer in group i = 1,, 3 for product j = A, B. Note first that by buying, the consumers in group 1 reveal they have a willingness to pay for product A that is at least \$ and a willingness to pay for product B that is at least \$5; hence we know that v1 A and v1 B 5. Consumers in group are willing to pay v A for product A and v B = 1 for product B. Consumers in group 3 are willing to pay v3 B 5 for product B and v3 A = 1 for product A. Let p A = denote the price of product A and let p B = 5 denote the price of product B (bought separately). Let p denote the price of a bundle. (a) Suppose now that the company offers a bundle in addition to selling the products 5

6 separately. By buying only product A, consumers in group obtain a consumer surplus of v A p A = v A. Consumers in this group will prefer to buy the bundle if doing so generates a higher consumer surplus. Hence if v A + v B p v A p A or if p v B + p A = 1 + = 3. The corresponding calculation for group 3 goes as follows. By buying only product B, consumers in group 3 obtain a consumer surplus of v3 B p B = v3 B 5. Consumers in this group will prefer to buy the bundle if doing so generates a higher consumer surplus. Hence if v3 A + v3 B p v3 B p B or if p v A 3 + p B = = 35. (b) Suppose now that the company offers the bundle at the price p = 3. What product will a consumer in each group buy? Consider a consumer in group 1. This consumer will clearly buy the bundle. We know that a consumer in this group is willing to buy each product when not bundled; hence v1 A p A and v1 B p B and the total surplus to a consumer from this group from doing so would then be v1 A + v1 B p A p B By buying the bundle, the consumer can obtain the surplus v1 A + v1 B p > 6

8 Hence we conclude that pricing the bundle at p = 3 (and inducing all groups to buy it) generates more profits than pricing at p = 35 (and inducing only some consumers to buy it). (c) Without bundling, consumers in group 1 purchase both products; consumers in group buy only product A while consumers in group 3 buy only product B. Total revenue/profits are then Π = p A ( + 4) + p B ( + 4) = ( + 4) + 5 ( + 4) = 7 Since bundling and pricing the bundle at the optimal price p = 3 generates a higher profit, bundling generates more profits. (d) Now let the group-sizes be N 1 = t, N = (1 t), and N 3 = (1 t) with t 1. Note that above we had that t =. Now we consider the more general case. Suppose for that the company does not bundle. Profits are then Π (t) = p A (N 1 + N ) + p B (N 1 + N 3 ) ( ) ( (1 t) = t t + ( = 5 + t ) ( t ) ( = 5 + t ) ( + 5) ( = 5 + t ) 45 = 5 + 5t ) (1 t) Suppose now that it bundles (at the price p = 3). At that price, as shown above, all consumers buy the bundle, leading to the total revenue Π p =3 = 3. Bundling thus yields a higher profit as long as t 8

9 or, equivalently, as long as t The following figure illustrates revenue/profits as a function of t. The solid line are profits from not bundling. The dashed line are profits from bundling at p = 3. (The dotted line are the profits from bundling at the higher price p = 35 which is hence not optimal for any value of t.) y x 9

### 7 The Optimum of Monopoly, Price Discrimination

Microeconomics I - Lecture #7, March 31, 2009 7 The Optimum of Monopoly, Price Discrimination 7.1 Monopoly Up to now we have analyzed the behavior of a competitive industry, a market structure that is

### 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 7, Lecture 22

Monopoly. Principles of Microeconomics, Fall Chia-Hui Chen November, Lecture Monopoly Outline. Chap : Monopoly. Chap : Shift in Demand and Effect of Tax Monopoly The monopolist is the single supply-side

Commerce 295 Midterm Answers October 27, 2010 PART I MULTIPLE CHOICE QUESTIONS Each question has one correct response. Please circle the letter in front of the correct response for each question. There

### Do not open this exam until told to do so. Solution

Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Fall 003 Final (Version): Intermediate Microeconomics (ECON30) Solution Final (Version

### Perfect Competition & Welfare

Perfect Competition & Welfare Outline Derive aggregate supply function Short and Long run euilibrium Practice problem Consumer and Producer Surplus Dead weight loss Practice problem Focus on profit maximizing

### Ecn Intermediate Microeconomic Theory University of California - Davis December 10, 2009 Instructor: John Parman. Final Exam

Ecn 100 - Intermediate Microeconomic Theory University of California - Davis December 10, 2009 Instructor: John Parman Final Exam You have until 12:30pm to complete this exam. Be certain to put your name,

### Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials

LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were

### ECN 3103 INDUSTRIAL ORGANISATION

ECN 3103 INDUSTRIAL ORGANISATION 3. Monopoly Mr. Sydney Armstrong Lecturer 1 The University of Guyana 1 Semester 1, 2016 OUR PLAN Monopoly Reference for reviewing these concepts: Carlton, Perloff, Modern

### Fundamentals of Markets

Fundamentals of Markets Daniel Kirschen University of Manchester 2006 Daniel Kirschen 1 Let us go to the market... Opportunity for buyers and sellers to: compare prices estimate demand estimate supply

### SCHOOL OF ECONOMICS AND FINANCE THE UNIVERSITY OF HONG KONG ECON6021 MICROECONOMICS PROBLEM SET NO.3 COMPETITIVE MARKETS AND MONOPOLY

SCHOOL OF ECONOMICS AND FINANCE THE UNIVERSITY OF HONG KONG ECON60 MICROECONOMICS PROBLEM SET NO.3 COMPETITIVE MARKETS AND MONOPOLY This problem set contains short-answer (true, false, uncertain) problems

### Econ Microeconomic Analysis and Policy

ECON 500 Microeconomic Theory Econ 500 - Microeconomic Analysis and Policy Monopoly Monopoly A monopoly is a single firm that serves an entire market and faces the market demand curve for its output. Unlike

### ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly

ECON 21 Principles of Microeconomics (Summer 216) Monopoly Relevant readings from the textbook: Mankiw, Ch. 15 Monopoly Suggested problems from the textbook: Chapter 15 Questions for Review (Page 323):

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. FIGURE 1-2

Questions of this SAMPLE exam were randomly chosen and may NOT be representative of the difficulty or focus of the actual examination. The professor did NOT review these questions. MULTIPLE CHOICE. Choose

### Chapter 10: Monopoly

Chapter 10: Monopoly Answers to Study Exercise Question 1 a) horizontal; downward sloping b) marginal revenue; marginal cost; equals; is greater than c) greater than d) less than Question 2 a) Total revenue

### Monopoly. Cost. Average total cost. Quantity of Output

While a competitive firm is a price taker, a monopoly firm is a price maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The

### UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013 Monopolistic markets and pricing with market power (PR 10.1-10.4 and 11.1-11.4) Module 4 Sep. 20, 2014

### Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University

15 Monopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Market power Why Monopolies Arise Alters the relationship between a firm s costs and the selling price Monopoly

### Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker.

Monopoly Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly A firm is considered a monopoly if... it is the sole seller of its product. its product does not

### Advanced Microeconomic Theory. Chapter 7: Monopoly

Advanced Microeconomic Theory Chapter 7: Monopoly Outline Barriers to Entry Profit Maximization under Monopoly Welfare Loss of Monopoly Multiplant Monopolist Price Discrimination Advertising in Monopoly

### Monopoly. Chapter 15

Monopoly Chapter 15 Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly u A firm is considered a monopoly if... it is the sole seller of its product. its product

### After studying this chapter you will be able to

3 Demand and Supply After studying this chapter you will be able to Describe a competitive market and think about a price as an opportunity cost Explain the influences on demand Explain the influences

### A few firms Imperfect Competition Oligopoly. Figure 8.1: Market structures

8.1 Setup Monopoly is a single firm producing a particular commodity. It can affect the market by changing the quantity; via the (inverse) demand function p (q). The tradeoff: either sell a lot cheaply,

### EconS 301 Intermediate Microeconomics Review Session #9 Chapter 12: Capturing Surplus

EconS 30 Intermediate Microeconomics Review Session #9 Chapter : Capturing Surplus. With second-degree price discrimination a) The firm tries to price each unit at the consumer s reservation price. b)

### iv. The monopolist will receive economic profits as long as price is greater than the average total cost

Chapter 15: Monopoly (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- Monopolies have no close competitors and,

### INTERPRETATION. SOURCES OF MONOPOLY (Related to P-R pp )

ECO 300 Fall 2005 November 10 MONOPOLY PART 1 INTERPRETATION Literally, just one firm in an industry But interpretation depends on how you define industry General idea a group of commodities that are close

### WRITTEN PRELIMINARY Ph.D. EXAMINATION. Department of Applied Economics. University of Minnesota. June 16, 2014 MANAGERIAL, FINANCIAL, MARKETING

WRITTEN PRELIMINARY Ph.D. EXAMINATION Department of Applied Economics University of Minnesota June 16, 2014 MANAGERIAL, FINANCIAL, MARKETING AND PRODUCTION ECONOMICS FIELD Instructions: Write your code

### Note on webpage about sequential ascending auctions

Econ 805 Advanced Micro Theory I Dan Quint Fall 2007 Lecture 20 Nov 13 2007 Second problem set due next Tuesday SCHEDULING STUDENT PRESENTATIONS Note on webpage about sequential ascending auctions Everything

### Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting

Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and

### Basic Monopoly Pricing and Product Strategies

Chapter 3 Basic Monopoly Pricing and Product Strategies Industrial 1 Introduction A monopolist has the power to set prices Consider how the monopolist exercises this power Focus in this section on a single-product

### Basics of Economics. Alvin Lin. Principles of Microeconomics: August December 2016

Basics of Economics Alvin Lin Principles of Microeconomics: August 2016 - December 2016 1 Markets and Efficiency How are goods allocated efficiently? How are goods allocated fairly? A normative statement

### ECON 115. Industrial Organization

ECON 115 Industrial Organization 1. Tonight is a calculus review. 2. And a review of basic microeconomics. 3. We will do a couple of problems in class. First hour: Calculus Thinking on the margin. Introducing

### Pricing with Market Power

Chapter 7 Pricing with Market Power 7.1 Motives and objectives Broadly The model of perfect competition is extreme (and hence wonderfully powerful and simple) because of its assumption that each firm believes

### Practice Exam 3: S201 Walker Fall with answers to MC

Practice Exam 3: S201 Walker Fall 2007 - with answers to MC Print Your Name: I. Multiple Choice (3 points each) 1. If marginal utility is falling then A. total utility must be falling. B. marginal utility

### Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources

Market structures Why Monopolies Arise Market power Alters the relationship between a firm s costs and the selling price Charges a price that exceeds marginal cost A high price reduces the quantity purchased

### Sloan School of Management / FINAL EXAMINATION (Tuesday, December 18, 2001, 9:00 a.m. to noon)

Sloan School of Management 15.010/ 15.011 Massachusetts Institute of Technology Economic Analysis for Business Decisions FINAL EXAMINATION (Tuesday, December 18, 2001, 9:00 a.m. to noon) Directions: This

### Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we must criticize it a bit. Monopoly occurs when there is

### Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007

Instructions: Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007 This is a 60-minute examination. Write all answers in the blue books provided. Show all work. Use diagrams where appropriate and label

### Journal of Industrial Organization Education

Journal of Industrial Organization Education Volume 2, Issue 1 2007 Article 1 Simulating Tariffs vs. Quotas with Domestic Monopoly John Gilbert, Utah State University Reza Oladi, Utah State University

### Other examples of monopoly include Australia Post.

In this session we will look at monopolies, where there is only one firm in the market with no close substitutes. For example, Microsoft first designed the operating system Windows. As a result of this

### Section I (20 questions; 1 mark each)

Foundation Course in Managerial Economics- Solution Set- 1 Final Examination Marks- 100 Section I (20 questions; 1 mark each) 1. Which of the following statements is not true? a. Societies face an important

### EconS Bundling and Tying

EconS 425 - Bundling and Tying Eric Dunaway Washington State University eric.dunaway@wsu.edu Industrial Organization Eric Dunaway (WSU) EconS 425 Industrial Organization 1 / 39 Introduction Let s talk

### Welfare economics part 2 (producer surplus) Application of welfare economics: The Costs of Taxation & International Trade

Welfare economics part 2 (producer surplus) Application of welfare economics: The Costs of Taxation & International Trade Dr. Anna Kowalska-Pyzalska Department of Operations Research Presentation is based

### Monopolistic Competition. Chapter 17

Monopolistic Competition Chapter 17 The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products Monopoly Oligopoly Monopolistic

### Coffee is produced at a constant marginal cost of \$1.00 a pound. Due to a shortage of cocoa beans, the marginal cost rises to \$2.00 a pound.

Microeconomics, Module 11: Monopoly (Chapter 10) Illustrative Test Questions (The attached PDF file has better formatting.) Updated: June 27, 2005 Question 11.1: Monopoly All but which of the following

### Chapter 21. Consumer Choice

Consumer Choice Utility is most closely defined as a) extra. b) marginal. c) usefulness. d) satisfaction. e) opportunity cost. Copyright Houghton Mifflin Company. All rights reserved. 21 2 Utility is most

### Third degree price discrimination. Welfare Analysis

Third degree price discrimination Welfare Analysis Third-degree rice discrimination and welfare Does third-degree price discrimination reduce welfare? not the same as being fair relates solely to efficiency

### Chapter 28: Monopoly and Monopsony

Chapter 28: Monopoly and Monopsony 28.1: Introduction The previous chapter showed that if the government imposes a tax on some good that there is a loss of surplus. We show a similar result in this chapter

### Working Paper No Can By-product Lobbying Firms Compete? Paul Pecorino

Working Paper No. -2-3 Can By-product Lobbying Firms Compete? Paul Pecorino February 2 Can By-product Lobbying Firms Compete? Paul Pecorino* Department of Economics, Finance and Legal Studies Box 87224

### IB Economics Competitive Markets: Demand and Supply 1.4: Price Signals and Market Efficiency

IB Economics: www.ibdeconomics.com 1.4 PRICE SIGNALS AND MARKET EFFICIENCY: STUDENT LEARNING ACTIVITY Answer the questions that follow. 1. DEFINITIONS Define the following terms: [10 marks] Allocative

### Price = The Interaction of Supply and Demand WEDNESDAY, FEBRUARY 17 THURSDAY, FEBRUARY 18

Price = The Interaction of Supply and Demand WEDNESDAY, FEBRUARY 17 THURSDAY, FEBRUARY 18 Chapter 4: Section 1 Understanding Demand What Is Demand? Markets are where people come together to buy and sell

### EconS Perfect Competition and Monopoly

EconS 425 - Perfect Competition and Monopoly Eric Dunaway Washington State University eric.dunaway@wsu.edu Industrial Organization Eric Dunaway (WSU) EconS 425 Industrial Organization 1 / 47 Introduction

### Q.1 Distinguish between increase in demand and increase in quantity demanded of a commodity.

Q.1 Distinguish between increase in demand and increase in quantity demanded of a commodity. Q. 2 Given price of a good, how does a consumer decide as to how much of that good to buy? Q. 3 A consumer consumers

### Economics 110 Midterm #2 Practice Multiple Choice Qs Spring 2014

Midterm #2 Practice Multiple Choice Questions: Elasticity is a. a measure of how much buyers and sellers respond to changes in market conditions. b. the study of how the allocation of resources affects

### 1.1 Efficiency in economics What is efficiency in economics?

1 Economic Efficiency Efficiency is one of the most important concepts in A Level Economics. There are two aspects to economic : allocative and productive. Confusingly, there are many types of. Learn definitions

### Chapter 3 Quantitative Demand Analysis

Chapter 3 Quantitative Demand Analysis EX1: Suppose a 10 percent price decrease causes consumers to increase their purchases by 30%. What s the price elasticity? EX2: Suppose the 10 percent decrease in

### Chapter 15: Monopoly. Notes. Watanabe Econ Monopoly 1 / 83. Notes. Watanabe Econ Monopoly 2 / 83. Notes

Econ 3 Introduction to Economics: Micro Chapter : Monopoly Instructor: Hiroki Watanabe Spring 3 Watanabe Econ 93 Monopoly / 83 Monopolistic Market Monopolistic Pricing 3 Inefficiency of Monopoly Price

### 1 Budget Set, Preferences, Consumer s Optimum

Microeconomics I - Lecture #1, September 22, 2008 1 Budget Set, Preferences, Consumer s Optimum People choose the best things they can afford. Every consumer makes a decision about how much to consume

### 1. Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States.

1. Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States. c. the effect of income redistribution on work effort. d. how the allocation of

### Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting

Economics 6 th edition 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Modified by Yulin Hou For Principles of Microeconomics Florida International University Fall

### Imperfect Competition

Imperfect Competition 6.1 There are only two firms producing a particular product. The demand for the product is given by the relation p = 24 Q, where p denotes the price (in dollars per unit) and Q denotes

### Product Differentiation and Market Segmentation of Information Goods

Product Differentiation and Market Segmentation of Information Goods David (Xueqi) Wei University of Calgary david.wei@haskayne.ucalgary.ca Barrie R. Nault University of Calgary nault@ucalgary.ca Introduction

### Q - water 3. Q - water. Q - water. Q - water. A new equimarginal condition. Lecture 21 & 22. A single farmer. A single farmer.

Lecture 21 & 22 A new equimarginal condition First Second The efficient allocation of a resource at one point in time, the case of surface water. Third - The MNB to every user should be equal at the efficient

### Umbrella Branding Can Leverage Reputation, but only with Market Power. May 19, Eric B. Rasmusen

Umbrella Branding Can Leverage Reputation, but only with Market Power May 19, 2012 Eric B. Rasmusen Dan R. and Catherine M. Dalton Professor, Department of Business Economics and Public Policy, Kelley

### ECON 251 Exam 2 Pink. Fall 2012

ECON 251 Exam 2 Pink Use the table below to answer the following four questions The table below shows Harry s total utility from consuming beer and wine. The price of beer is \$2 per bottle. The price of

### Introduction to Economics II: Producer Theory

Introduction to Economics II: Producer Theory Leslie Reinhorn Durham University Business School October 2014 Plan of the Lecture Introduction The Case of Perfect Competition pro t maximization problem

### Introduction Question Bank

Introduction Question Bank 1. Science of wealth is the definition given by 2. Economics is the study of mankind of the ordinary business of life given by 3. Science which tells about what it is & what

### Lecture 13 - Price Discrimination

14.27 Economics and E-Commerce Fall 14 Lecture 13 - Price Discrimination Prof. Sara Ellison MIT OpenCourseWare A common (but too restrictive) definition of price discrimination: charging different customers

### CHAPTER 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

CHAPTER 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets CHAPTER OUTLINE Perfect competition Demand at the market and firm levels Short-run output decisions Long-run decisions

### Introduction. Consumer Choice 20/09/2017

Consumer Choice Introduction Managerial Problem Paying employees to relocate: when Google wants to transfer an employee from its Seattle office to its London branch, it has to decide how much compensation

### Lecture 2: Market Structure I (Perfect Competition and Monopoly)

Lecture 2: Market Structure I (Perfect Competition and Monopoly) EC 105. Industrial Organization Matt Shum HSS, California Institute of Technology October 1, 2012 EC 105. Industrial Organization ( Matt

### a. Find MG&E s marginal revenue function. That is, write an equation for MG&E's MR function.

Economics 101 Spring 2015 Answers to Homework #5 Due Thursday, May 7, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).

### Chapter 1 Introduction to Pricing Techniques

Chapter 1 Introduction to Pricing Techniques 1.1 Services, Booking Systems, and Consumer Value 2 1.1.1 Service definitions 1.1.2 Dynamic reservation systems 1.1.3 Consumer value 1.2 Overview of Pricing

Micro Chapter 6 -price ceiling or price cap: government regulation that makes it illegal to charge a price higher then a specified level -effects of the price cap on the market depend on whether the ceiling

### Managerial Economics Chapter 9 Practice Question

ECO 3320 Lanlan Chu Managerial Economics Chapter 9 Practice Question 1. The market for widgets consists of two firms that produce identical products. Competition in the market is such that each of the

### Exam 1 Version A A = 4; A- = 3.7; B+ = 3.3; B = 3.0; B- = 2.7; C+ = 2.3; C = 2.0; C- = 1.7; D+ = 1.3; D = 1.0; F = 0

BA 210 Exam 1 Version A Dr. Jon Burke This is a 100-minute exam (1hr. 40 min.). There are 8 questions (12.5 minutes per question). The exam begins exactly at the normal time that class starts. To avoid

### Journal of Industrial Organization Education

Journal of Industrial Organization Education Volume 3, Issue 1 2008 Article 1 Capacity-Constrained Monopoly Kathy Baylis, University of Illinois, Urbana-Champaign Jeffrey M. Perloff, University of California,

### JANUARY EXAMINATIONS 2008

No. of Pages: (A) 9 No. of Questions: 38 EC1000A micro 2008 JANUARY EXAMINATIONS 2008 Subject Title of Paper ECONOMICS EC1000 MICROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates

### Demand, Supply, and Price

Demand, Supply, and Price The amount of a good or service that we demand, the amount of a good or service that suppliers supply, and the price of a good or service all affect one another. Let's examine

### Market structure 1: Perfect Competition The perfectly competitive firm is a price taker: it cannot influence the price that is paid for its product.

Market structure 1: Perfect Competition The perfectly competitive firm is a price taker: it cannot influence the price that is paid for its product. This arises due to consumers indifference between the

### Economics of Managerial Decision Making (MGEC 611) SAMPLE EXAM

Economics of Managerial Decision Making (MGEC 611) SAMPLE EXAM QUESTION 1 Short Questions. This part consists of three short, stand-alone questions of lower math intensity. Please provide an answer or

### Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good.

McPeak Lecture 10 PAI 723 The competitive model. Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. As we derived a demand curve for an individual

### ECONOMICS ASSIGNMENT CLASS XII MICRO ECONOMICS UNIT I INTRODUCTION. 4. Is free medicine given to patients in Govt. Hospital a scarce commodity?

ECONOMICS ASSIGNMENT CLASS XII MICRO ECONOMICS UNIT I INTRODUCTION 1. What is the Slope of PPC? What does it show? 2. When can PPC be a straight line? 3. Do all attainable combination of two goods that

### Econ 2113: Principles of Microeconomics. Spring 2009 ECU

Econ 2113: Principles of Microeconomics Spring 2009 ECU Chapter 12 Monopoly Market Power Market power is the ability to influence the market, and in particular the market price, by influencing the total

### Supply and Demand: CHAPTER Theory

3 Supply and Demand: CHAPTER Theory Markets and Prices A market is any arrangement that enables buyers and sellers to get information and do business with each other. A competitive market is a market that

### Demand- how much of a product consumers are willing and able to buy at a given price during a given period.

Ch. 4 Demand Ch. 4.1 The Demand Curve (Learning Objective- explain the Law of Demand) In your world- What are the goods and services that you demand? What happens to your buying when the price goes up

### Calculating consumer s surplus and the change in consumer s surplus Calculating compensating and equivalent variations

In this chapter you will study ways to measure a consumer s valuation of a good given the consumer s demand curve for it The basic logic is as follows: The height of the demand curve measures how much

### 1. True or False. If the marginal product of labor is decreasing, then the average product of labor must also be decreasing. Explain.

ECO 220 Intermediate Microeconomics Professor Mike Rizzo Second COLLECTED Problem Set SOLUTIONS This is an assignment that WILL be collected and graded. Please feel free to talk about the assignment with

### 13 C H A P T E R O U T L I N E

PEARSON PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER Prepared by: Fernando Quijano w/shelly Tefft 2of 37 PART III MARKET IMPERFECTIONS AND THE ROLE OF GOVERNMENT Monopoly

### Why do monopolies charge different prices to different customers: price discrimination: eg mobile phone tariffs)

Why do monopolies charge different prices to different customers: price discrimination: eg mobile phone tariffs) We have previously seen how a monopolist chooses his profit maximising output - Which is

### 7.1 The concept of consumer s surplus

Microeconomics I. Antonio Zabalza. University of Valencia 1 Lesson 7: Consumer s surplus 7.1 The concept of consumer s surplus The demand curve can also be interpreted as giving information on the maimum

### Price Discrimination. It is important to stress that charging different prices for similar goods is not pure price discrimination.

What is price discrimination? Price discrimination or yield management occurs when a firm charges a different price to different groups of consumers for an identical good or service, for reasons not associated

### Level 3 Economics, 2015

91400 914000 3SUPERVISOR S Level 3 Economics, 2015 91400 Demonstrate understanding of the efficiency of different market structures using marginal analysis 2.00 p.m. Wednesday 18 November 2015 Credits:

### INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY. Monopolistic Competition

13-1 INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY Monopolistic Competition Pure monopoly and perfect competition are rare in the real world. Most real-world industries

### Targeted Advertising on Competing Platforms

Targeted Advertising on Competing Platforms Sii Pan and Huanxing Yang Department of Economics, Ohio State University February 26, 2014 Abstract This paper studies targeted advertising in two sided markets.

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is correct? A) Consumers have the ability to buy everything

### Chapter 28 The Labor Market: Demand, Supply, and Outsourcing

Chapter 28 The Labor Market: Demand, Supply, and Outsourcing Learning Objectives After you have studied this chapter, you should be able to 1. define marginal factor cost, marginal physical product of

### ECON 1000 D. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work.

It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in 2.5 hours. Work on your own. Keep your notes and textbook closed. Attempt every question.