A firm is able to sell its product in two different markets. The corresponding demand functions are 1. and the total cost function is 100, P₁ +2Q₁ 2P2+Q2 = 2a TC = = 500 +100, where Q = Q₁ + Q2 and a is a positive constant. Determine, in terms of a, the prices needed to maximize profit (a) with price discrimination (b) without price discrimination. Show that the profit with price discrimination is always greater than the profit without discrimination, irrespective of the value of a.

A firm is able to sell its product in two different markets. The corresponding demand functions are 1. and the total cost function is 100, P₁ +2Q₁ 2P2+Q2 = 2a TC = = 500 +100, where Q = Q₁ + Q2 and a is a positive constant. Determine, in terms of a, the prices needed to maximize profit (a) with price discrimination (b) without price discrimination. Show that the profit with price discrimination is always greater than the profit without discrimination, irrespective of the value of a.

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter10: Price-searcher Markets With Low Entry Barriers

Section: Chapter Questions

Problem 7CQ

See similar textbooks

Similar questions

The BCY Corporation provides accounting services to a wide variety of customers, most ofwhom have had a business association with BCY for more than five years.BCY's demand is: P = 24,000 – 20Q, and BCY's marginal cost of service is: MC = 40Q.a. If BCY charges a uniform price for a unit of accounting service, Q, what price must itcharge per unit, and how many units must it produce per time period in order to maximizeprofit? Calculate the consumer surplus.b. If BCY could enforce first-degree price discrimination, what would be the lowest pricethat it would charge and how many units would it produce per time period?c. With perfect price discrimination and ignoring any fixed cost, what is total profit andwhat is the amount of consumer surplus?
Using the following graph that presents the demand, marginalrevenue, and relevant costs for your product, determine your firm’s optimal price,output, and the resulting profits for each of the following scenarios: a.You charge the same unit price to all consumers.b. You engage in perfect price discrimination.c. You engage in two-part pricingJust for each scenario calculate from the graph i) optimal prizeii) optimal quantityiii) Profit
It is a surprise to many people that a Mercedes Benz, produced in Germany, is more expensivein Germany than the same car sold in the United States. This is true despite the added costsof shipping the car to the United States. Use the principles of price discrimination to explainwhy this would be so. Ignore differences in taxes
Assuming you are the managing director of a firm that produces three goods: A, Band C. The price elasticity of demand for A is 1.2, for B it is 1.00 and for C it is 0.75.It is known that he firm is experiencing serious cash flow problems and you have toincrease total revenue as soon as possible. If you were in a position to set the pricesfor these goods, what would be your pricing strategy for each product
2. Acme Pharmaceutical Company discovers a vaccine that prevents the common cold and has a patent that grants it a monopoly on this drug. Acme has plants in both the North America and Europe and can manufacture the drug on either continent at a marginal cost of $10. Assume there are no fixed costs. In Europe, the demand for the drug is QE = 70 - PE, where QE is the quantity demanded when the price in Europe is PE. In North America the demand for the drug is QN 110 PN, where QN is the quantity demanded when the price in North America is PN =
a) Suppose a movie theater determines that the elasticity of demand for movie tickets is -2.0 for senior citizens and –1.5 for adults under age 65, and the marginal cost is $2 per consumer. Use the Lerner index to determine how much senior citizens should be charged and how much adults under age 65 should be charged. b) A different movie theater, which faces the same marginal costs, charges consumers $6 for matinee movies and $10 for evening movies. Use the Lerner Index to calculate the price elasticity of demand for matinee consumers and evening consumers.
Q3) How is peak-load pricing a form of price discrimination? Can it make consumers better off? Give anexample.
B-club sells videocassette in two separable markets .the marginal cost of each cassette is $2. For the first market, demand is giv n by Q1=20-2.5p1 The demand equation for the second market is Q2=20-5p2 a)If the firm used third-degree price discrimination.what will be the profit maximizing price and?quantity in each market?how much economic profit maximizing will the firm earn? State different conditions required for price discrimination to occur effectively
What is price discrimination? Explain how the theories of elasticity, if used, can help suppliers make decisions on product prices.
Suppose Ford currently sells 250,000 Ford Mustangs annually. The unit cost of a Mustang, including the -delivery cost to a dealer, is $16,000. The current -Mustang price is $20,000, and the current elasticity of -demand for the Mustang is 21.5. a. Determine a profit-maximizing price for a -Mustang. Do this when the demand function is of the constant elasticity type. Do it when the -demand function is linear. b. Suppose Ford makes an average profit of $800 from -servicing a Mustang purchased from a Ford dealer. (This is an average over the lifetime of the car.) How do your answers to part a change?
S&S Manufacturing Co. supplies automotive parts in three outlets in Selangor. The inverse demand equations faced by each outlet are as follows: Outlet 1: P = 150 – 2.50 Q1 Outlet 2: P = 200 – 8.40 Q2 Outlet 3: P = 450 – 0.75 Q3 a. If the firm charges RM100 per unit, determine the quantity demanded by each outlet. b. Given the price, compute the own price elasticity for each outlet and identify which outlet is the most responsive to price change. Why? c. If S&S Manufacturing Co. plans to increase the price by 10 percent, do you think the Company is making a right decision? Explain your answer.
Suppose that the demand for a product is given by the following demand function: Q = 500 -3P A. To sell 200 units, what price should you charge?