Homework(Ch 15)7. Price discrimination and welfareSuppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph shothe market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $30 per pair of Oohboots. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means thatmarginal cost curve is also equal to the average total cost (ATC) curve.First, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the same price for Ooh boots regardless of theconsumer'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 (diamonsymbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade thedeadweight 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.)10090Monopoly Outcome80A7060Consumer Surplus50ProfitDeadweight LossPRICE (Dollars per pair of Ooh boots)302010MC = ATC Now, suppose that Barefeet can practice perfect price discrimination-that is, it knows each consumer's willingness to pay for each pair of Oand is able to charge each consumer that amount.On the following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the fiboots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus,black points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumerprofit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.)?100+90Monopoly Outcome807060ProfitA50Consumer SurplusDeadweight LossDemand360 40080 120 160 200 240 280 320QUANTITY (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 eithersingle-price monopolies or perfect price discrimination, leave the entire row unchecked.) Check all that apply.StatementSingle-price MonopolyPerfect Price DiscriminationBarefeet produces a quantity more than the efficient quantity of Ooh boots.Total surplus is not maximized.There is no deadweight loss associated with the profit-maximizing output.CEDPRICE (Dollars per pair of Ooh boots)2010040MC = ATC

When a firm practises perfect price discrimination, it maximise it reduces surface and there is no…

Homework(Ch 15) 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 sh the market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $30 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 marginal cost curve is also equal to the average total cost (ATC) curve. First, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the 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 (diamon 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 A 70 60 Consumer Surplus 50 Profit Deadweight Loss PRICE (Dollars per pair of Ooh boots) 30 20 10 MC = ATC

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

Chapter11: Price-searcher Markets With High Entry Barriers

Section: Chapter Questions

Problem 13CQ

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Transcribed Image Text:Homework(Ch 15) 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 sho the market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $30 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 marginal cost curve is also equal to the average total cost (ATC) curve. First, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the 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 (diamon 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 A 70 60 Consumer Surplus 50 Profit Deadweight Loss PRICE (Dollars per pair of Ooh boots) 30 20 10 MC = ATC

Now, suppose that Barefeet can practice perfect price discrimination-that is, it knows each consumer's willingness to pay for each pair of O
and is able to charge each consumer that amount.
On the following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the fi
boots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus,
black points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer
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
Profit
A
50
Consumer Surplus
Deadweight Loss
Demand
360 400
80 120 160 200 240 280 320
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
Barefeet produces a quantity more than the efficient quantity of Ooh boots.
Total surplus is not maximized.
There is no deadweight loss associated with the profit-maximizing output.
CED
PRICE (Dollars per pair of Ooh boots)
20
10
0
40
MC = ATC

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