3. Based on the best available econometric estimates, the market elasticity of demand for your firm’s product is -2. The marginal cost of producing your product is constant at $50. a. What is your optimal per unit price if you are a monopolist? b. What is your optimal per unit price if you compete against one other firm in a Cournot oligopoly? What is your optimal per unit price if you compete against 20 other firms in a Cournot oligopoly? c. What price pattern are you seeing between parts a and b? Explain why this makes intuitive sense (hint: at what price will you eventually sell your product if the number of firms continues to increase?).
3. Based on the best available econometric estimates, the market elasticity of demand
for your firm’s product is -2. The marginal cost of producing your product is constant at $50.
a. What is your optimal per unit
b. What is your optimal per unit price if you compete against one other firm in a Cournot
oligopoly? What is your optimal per unit price if you compete against 20 other firms in a
Cournot oligopoly?
c. What price pattern are you seeing between parts a and b? Explain why this makes intuitive
sense (hint: at what price will you eventually sell your product if the number of firms
continues to increase?).
d. Suppose once again you are a monopolist, but your product sells to two different groups of
consumers segmented by region. The east coast customers have demand elasticity equal to
what is shown above (-2) and your west coast customers have demand elasticity equal to -4.
Determine the optimal prices under third-degree
exist for third-degree price discrimination to enhance economic profits?
e. Graphically show how first-degree price discrimination gives you more profit (or producer
surplus) than charging the same per-unit price for all customers.
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