Exercise 4.5 Roger is a regular consumer of personalized greeting cards with Hofmann photographs. Its demand curve is given by qd = 31 - 0.5P. Rogelio is a representative consumer of this type of cards so we can assume that the rest of the customers, 1,000 in total, have the same demand curve. The supplier company, Hofmann, can produce each card at a constant average and marginal cost of €2. In the market of personalized greeting cards there are many other companies that offer very similar cards. Consider the following 4 scenarios: (i) Hofmann acts as a perfect competitor. ii) Hofmann acts as a monopolist. iii) Hofmann acts as a first-degree discriminator monopolist iv) Hofmann acts as a second-degree discriminator monopolist and offers each of its customers the possibility to buy the first 15 cards at a unit price of € 32, the next 5 (from € 16 to 20) at a unit price of € 22 and the following 10 (from € 21 to 30) at a unit price of €2. Calculate, for the 4 scenarios proposed, the surplus of the consumer, the surplus of the producer, represent graphically and indicate: a) Which scenario is the most favourable for consumers? b) Which scenario is the most favourable for Hofmann? c) Which scenario is the most favourable for consumers and Hofmann taken together?
Exercise 4.5
Roger is a regular consumer of personalized greeting cards with Hofmann photographs. Its
Consider the following 4 scenarios:
(i) Hofmann acts as a perfect competitor.
ii) Hofmann acts as a monopolist.
iii) Hofmann acts as a first-degree discriminator monopolist
iv) Hofmann acts as a second-degree discriminator monopolist and offers each of its customers the possibility to buy the first 15 cards at a unit
Calculate, for the 4 scenarios proposed, the surplus of the
a) Which scenario is the most favourable for consumers?
b) Which scenario is the most favourable for Hofmann?
c) Which scenario is the most favourable for consumers and Hofmann taken together?
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