4. Alset produces electric cars, which have short range or long range. There are 100 drivers who are "Commuters" and 100 who are "Travelers." Their reservation prices are as follows: Short Range Long Range 49,000 Commuters 30,000 Travelers 40,000 95,000 Marginal cost is equal to 10,000 for cars with short and long range both. Alset knows the distribution of reservation prices but does not know the reservation prices of any individual driver. (i) Suppose that Alset sells one type of car and employs linear pricing. Which type will it sell and what will the price be. (ii) Find the optimal prices under second-degree price discrimination. (iii). Is profit higher in (i) or (ii)? Is social surplus higher in (i) or (ii)?
4. Alset produces electric cars, which have short range or long range. There are 100 drivers who are "Commuters" and 100 who are "Travelers." Their reservation prices are as follows: Short Range Long Range 49,000 Commuters 30,000 Travelers 40,000 95,000 Marginal cost is equal to 10,000 for cars with short and long range both. Alset knows the distribution of reservation prices but does not know the reservation prices of any individual driver. (i) Suppose that Alset sells one type of car and employs linear pricing. Which type will it sell and what will the price be. (ii) Find the optimal prices under second-degree price discrimination. (iii). Is profit higher in (i) or (ii)? Is social surplus higher in (i) or (ii)?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter14: Monopoly
Section: Chapter Questions
Problem 1PA
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Question
![4. Alset produces electric cars, which have short range or long range. There are 100
drivers who are "Commuters" and 100 who are “Travelers." Their reservation prices are as
follows:
Short Range
Long Range
49,000
Commuters
30,000
Travelers
40,000
95,000
Marginal cost is equal to 10,000 for cars with short and long range both. Alset knows the
distribution of reservation prices but does not know the reservation prices of any
individual driver.
(i) Suppose that Alset sells one type of car and employs linear pricing. Which type will it
sell and what will the price be.
(ii) Find the optimal prices under second-degree price discrimination.
(iii) Is profit higher in (i) or (ii)? Is social surplus higher in (i) or (ii)?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbdc50742-a0b1-402c-9a23-d05b31b6d274%2F077bf7c8-3147-40a8-b30c-e79784990abf%2F8npz1ed_processed.jpeg&w=3840&q=75)
Transcribed Image Text:4. Alset produces electric cars, which have short range or long range. There are 100
drivers who are "Commuters" and 100 who are “Travelers." Their reservation prices are as
follows:
Short Range
Long Range
49,000
Commuters
30,000
Travelers
40,000
95,000
Marginal cost is equal to 10,000 for cars with short and long range both. Alset knows the
distribution of reservation prices but does not know the reservation prices of any
individual driver.
(i) Suppose that Alset sells one type of car and employs linear pricing. Which type will it
sell and what will the price be.
(ii) Find the optimal prices under second-degree price discrimination.
(iii) Is profit higher in (i) or (ii)? Is social surplus higher in (i) or (ii)?
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