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First-Degree Price Discrimination 3. Prove to yourself that a market price of $17 will generate a total consumer surplus of $6. Hint: The consumer surplus generated by the consumer willing to pay $20 is (20 -17) x1=3. CS= 4. Assume that the average and marginal costs are constant and equal to 14. If Pat produces the per fectly competitive quantity and charges the perfectly competitive price, (A) what price will Pat charge for a tattool. (B) what quantity will Pat supplyt. (C) what is the amount of consumer surplus generated? CS 5. Assume that the average and marginal costs are constant and equal to 14. If Pat produces the monopoly quantity and charges the monopoly price, (A) what price will Pat charge for a tattoo? (B) what quantity will Pat supply? (C) what is the amount of consumer surplus generated? CS=

First-Degree Price Discrimination 3. Prove to yourself that a market price of $17 will generate a total consumer surplus of $6. Hint: The consumer surplus generated by the consumer willing to pay $20 is (20 -17) x1=3. CS= 4. Assume that the average and marginal costs are constant and equal to 14. If Pat produces the per fectly competitive quantity and charges the perfectly competitive price, (A) what price will Pat charge for a tattool. (B) what quantity will Pat supplyt. (C) what is the amount of consumer surplus generated? CS 5. Assume that the average and marginal costs are constant and equal to 14. If Pat produces the monopoly quantity and charges the monopoly price, (A) what price will Pat charge for a tattoo? (B) what quantity will Pat supply? (C) what is the amount of consumer surplus generated? CS=

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Price Discrimination When producers have market power and they sell a good that cannot be resold, the possibility for price discrimination arises. Price discrimination occurs when a producer is able to charge consumers with different tastes and preferences different prices for the same good. We know profit maximization for a firm that is able to set a single price occurs when the firm pro- duces the quantity at which MR = MC. If a producer is able to price discriminate, however, then prof- its can be even higher. Part A Pricing with Market Power and Consumer Surplus Pat's Patriotic Tattoos is the only tattoo parlor in town. Pat tattoos only images of the American flag. There are 20 consumers who are willing to buy a tattoo. Each consumer is interested in buying only one tattoo, but they vary in their willingness to pay. One consumer is willing to pay $20 for a tattoo; another is willing to pay $19; a third, $18, down to the consumer least willing to pay who has a reservation price of $1. 1. The demand schedule is given below in Figure 36.1. Complete the table. Figure 36.1. Demand Schedule Price Quantity Total Revenue Marginal Revenue $20 19 2 18 3 17 4 16 15 6 14 13 12 11 10 10 11 12 13 14 6 15 16 4 17 18 2 19 20
Transcribed Image Text:Price Discrimination When producers have market power and they sell a good that cannot be resold, the possibility for price discrimination arises. Price discrimination occurs when a producer is able to charge consumers with different tastes and preferences different prices for the same good. We know profit maximization for a firm that is able to set a single price occurs when the firm pro- duces the quantity at which MR = MC. If a producer is able to price discriminate, however, then prof- its can be even higher. Part A Pricing with Market Power and Consumer Surplus Pat's Patriotic Tattoos is the only tattoo parlor in town. Pat tattoos only images of the American flag. There are 20 consumers who are willing to buy a tattoo. Each consumer is interested in buying only one tattoo, but they vary in their willingness to pay. One consumer is willing to pay $20 for a tattoo; another is willing to pay $19; a third, $18, down to the consumer least willing to pay who has a reservation price of $1. 1. The demand schedule is given below in Figure 36.1. Complete the table. Figure 36.1. Demand Schedule Price Quantity Total Revenue Marginal Revenue $20 19 2 18 3 17 4 16 15 6 14 13 12 11 10 10 11 12 13 14 6 15 16 4 17 18 2 19 20
First-Degree Price Discrimination 3. Prove to yourself that a market price of $17 will generate a total consumer surplus of $6. Hint: The consumer surplus generated by the consumer willing to pay $20 is (20-17) x1= 3. CS = 4. Assume that the average and marginal costs are constant and equal to 14. If Pat produces the per- fectly competitive quantity and charges the perfectly competitive price, (A) what price will Pat charge for a tattoo?. (B) what quantity wilI Pat supply?. (C) what is the amount of consumer surplus generated?, CS 5. Assume that the average and marginal costs are constant and equal to 14. If Pat produces the monopoly quantity and charges the monopoly price, (A) what price will Pat charge for a tattoo? (B) what quantity will Pat supply? (C) what is the amount of consumer surplus generated? CS = 6. Again, assume that the average and marginal costs are constant and equal to 14. Now assume that Pat knows the tastes and preferences of all consumers and that the conditions that allow price dis- crimination apply. (A) What quantity will Pat supply? (B) At what prices will she sell tattoos? $17, , (C) What is the amount of consumer surplus generated? CS =
Transcribed Image Text:First-Degree Price Discrimination 3. Prove to yourself that a market price of $17 will generate a total consumer surplus of $6. Hint: The consumer surplus generated by the consumer willing to pay $20 is (20-17) x1= 3. CS = 4. Assume that the average and marginal costs are constant and equal to 14. If Pat produces the per- fectly competitive quantity and charges the perfectly competitive price, (A) what price will Pat charge for a tattoo?. (B) what quantity wilI Pat supply?. (C) what is the amount of consumer surplus generated?, CS 5. Assume that the average and marginal costs are constant and equal to 14. If Pat produces the monopoly quantity and charges the monopoly price, (A) what price will Pat charge for a tattoo? (B) what quantity will Pat supply? (C) what is the amount of consumer surplus generated? CS = 6. Again, assume that the average and marginal costs are constant and equal to 14. Now assume that Pat knows the tastes and preferences of all consumers and that the conditions that allow price dis- crimination apply. (A) What quantity will Pat supply? (B) At what prices will she sell tattoos? $17, , (C) What is the amount of consumer surplus generated? CS =
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