Question 2 [Suppose 'Car Today' is the only firm selling cars in a small, rural town. Assume that people in the town do not want to leave the town to buy cars. Also assume that there is a constant marginal cost for 'Car Today'.] a) [What type of market structure do you think 'Car Today' belongs to? Why? Explain in 100 words or less. Market structure identified correctly with logical and sound explanation. b) [Draw a graph for Car Today that shows the firm carrying out perfect price discrimination (first degree). Label the producer surplus, consumer surplus, and deadweight loss in the graph. No explanation required properly labelled, correct graph. Producer& consumer surplus and dead weight loss correctly identified and labelled on graph. c) [Now suppose the city council hears of Car Today's practices and outlaws price discrimination (and assume they can successfully enforce it). Draw a new graph showing what Car Today will do to maximize profits. Label the producer surplus, consumer surplus, and deadweight loss in the graph. No explanation required. Properly labelled, correct graph. Producer & consumer surplus and dead weight loss correctly identified and labelled on graph.

Question 2 [Suppose 'Car Today' is the only firm selling cars in a small, rural town. Assume that people in the town do not want to leave the town to buy cars. Also assume that there is a constant marginal cost for 'Car Today'.] a) [What type of market structure do you think 'Car Today' belongs to? Why? Explain in 100 words or less. Market structure identified correctly with logical and sound explanation. b) [Draw a graph for Car Today that shows the firm carrying out perfect price discrimination (first degree). Label the producer surplus, consumer surplus, and deadweight loss in the graph. No explanation required properly labelled, correct graph. Producer& consumer surplus and dead weight loss correctly identified and labelled on graph. c) [Now suppose the city council hears of Car Today's practices and outlaws price discrimination (and assume they can successfully enforce it). Draw a new graph showing what Car Today will do to maximize profits. Label the producer surplus, consumer surplus, and deadweight loss in the graph. No explanation required. Properly labelled, correct graph. Producer & consumer surplus and dead weight loss correctly identified and labelled on graph.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

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

Chapter23: Price-searcher Markets With Low Entry Barriers

Section: Chapter Questions

Problem 6CQ

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