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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Both the screenshots are the same question. It would not fit in one screenshot so I took two.

On the following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the firm sells its
boots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the
black points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer surplus,
profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.)
100
90
Monopoly Outcome
80
70
Profit
MC = ATC
40
Consumer Surplus
30
Deadweight Loss
10
Demand
20
40
60
80
100
120
140
160
180
200
QUANTITY (Pairs of Ooh boots)
Consider the welfare effects when the industry operates under a monopoly and cannot price discriminate versus when it can price discriminate.
Complete the following table by indicating under which market conditions each of the statements is true. (Note: If the statement isn't true for either
single-price monopolies or perfect price discrimination, leave the entire row unchecked.) Check all that apply.
Statement
Single-price Monopoly
Perfect Price Discrimination
There is deadweight loss associated with the profit-maximizing output.
Barefeet produces a quantity less than the efficient quantity of Ooh boots.
Total surplus is maximized.
PRICE (Dollars per pair of Ooh boots)

Transcribed Image Text:7. Price discrimination and welfare Suppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph shows the market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $40 per pair of Ooh boots. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means that its marginal cost curve is also equal to the average total cost (ATC) curve. First, suppose that Barefeet cannot price Customize and control Google Chrome he same price for Ooh boots regardless of the consumer's willingness and ability to pay. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market without price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.) 100 90 Monopoly Outcome 80 70 60 Consumer Surplus 50 MC = ATC 40 Profit Deadweight Loss 10 MR Demand 20 40 60 80 100 120 140 160 180 200 QUANTITY (Pairs of Ooh boots) Now, suppose that Barefeet can practice perfect price discrimination-that is, it knows each consumer's willingness to pay for each pair of Ooh boots and is able to charge each consumer that amount. PRICE (Dollars per pair of Ooh boots)

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