1. Price Discrimination with Downward Sloping Demand. A firm chooses how much of a good to sell to consumers with downward sloping demand. Consumers have utility u(q) = 12qaq², where q is quantity. The firm has no costs.¹ First, suppose there is mass one of consumers with a = 1. a) Linear pricing. The firm charges a single price p per unit to maximize its profits. What price does it choose? How much do consumers buy? How much profit does the firm make? b) Nonlinear pricing. Suppose the firm can charge a different price p(q) for each unit q. What price function does it choose? How much do consumers buy? How much profit does the firm make? c) Bundled pricing. Suppose the firm can sell a bundle (q, p). What price and quantity does it choose? How much profit does the firm make?

1. Price Discrimination with Downward Sloping Demand. A firm chooses how much of a good to sell to consumers with downward sloping demand. Consumers have utility u(q) = 12qaq², where q is quantity. The firm has no costs.¹ First, suppose there is mass one of consumers with a = 1. a) Linear pricing. The firm charges a single price p per unit to maximize its profits. What price does it choose? How much do consumers buy? How much profit does the firm make? b) Nonlinear pricing. Suppose the firm can charge a different price p(q) for each unit q. What price function does it choose? How much do consumers buy? How much profit does the firm make? c) Bundled pricing. Suppose the firm can sell a bundle (q, p). What price and quantity does it choose? How much profit does the firm make?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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