Question 4 OCP is the monopoly seller of Soma with a constant marginal cost of production of $1 a unit. There are 100 potential consumers of Soma who belong to one of two types, heavy and light. There are an equal number of each type. The inverse demand curve of heavy users is pH(q) = 9.4 – 2q while that of light users is pL(q) = 3– q. We also assume there is no trade between different types of buyers. 1. If OCP could perfectly discriminate between the two types of buyers what two-part tariff should they charge each type to maximize profit? 2. Suppose the Government were to ban such price discrimination and required OCP to set a single two-part tariff. What would the profit-maximizing two-part tariff be? OCP cannot forbid any buyer from purchasing at the announced tariff.

Question 4 OCP is the monopoly seller of Soma with a constant marginal cost of production of $1 a unit. There are 100 potential consumers of Soma who belong to one of two types, heavy and light. There are an equal number of each type. The inverse demand curve of heavy users is pH(q) = 9.4 – 2q while that of light users is pL(q) = 3– q. We also assume there is no trade between different types of buyers. 1. If OCP could perfectly discriminate between the two types of buyers what two-part tariff should they charge each type to maximize profit? 2. Suppose the Government were to ban such price discrimination and required OCP to set a single two-part tariff. What would the profit-maximizing two-part tariff be? OCP cannot forbid any buyer from purchasing at the announced tariff.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A monopolist hires you to design its pricing policy. After month of doing market research you realize that the own-price elasticity is not the same for different groups of consumers in the market. (a) If group (a) has an own-price elasticity of 2.16 and group (b) 1.26. Assuming that the firm can directly observe an indicator of belonging to groups (a) and (b), what degree of price-discrimination can the monopolist implement? which group will end up paying more? (b) Will producer's surplus increase or decrease with price discrimination? what about consumer surplus? (consider single pricing vs price discrimination) (c) If a you get hold of a magic crystal ball that tells you the exact willingness to pay of each consumer. What type of price discrimination can the monopolist use to maximize profits? is this strategy “efficient” from the point of view of total surplus? are consumers better-off or worse-off? (Hint: A graph can greatly clarify this part.)
d) If a price ceiling of $17.50 is imposed by the government on the monopolist, estimate (based on the graph) the quantity that the monopolist will produce. In this case, does the price ceiling in a monopoly improve economic efficiency or not? e) Supposed that instead of a regular monopoly, the graph above pertains to a natural monopoly, what change must be made to the graph to depict a natural monopoly?
9. The kinked demand curve Wilke is a manufacturer in the oligopolistically competitive market for footballs. Two other manufacturers, Rawlding and Spaldon, compete with Wilke for football consumers. Wilke faces the kinked demand curve for footballs depicted on the graph. Initially, Wilke charges $30 per football, producing and selling 7 million footballs per year. PRICE (DOLLARS PER BALL) 36 35 34 33 32 31 30 29 28 27 28 5 в 7 8 FOOTBALLS (Millions of balls) 9 10 ? As an oligopolist, Wilke is a price maker. If Wilke raises the price of its football from $30 to $32 per ball, the quantity of Wilke footballs demanded million footballs per year. If Wilke reduces the price of its football from $30 to $28 per ball, the quantity of footballs demanded million footballs per year. (Hint: Mouse over the points on the graph to see their coordinates.) by by If Wilke lowers the price of its football below $30, the kinked demand curve model suggests that Rawlding and Spaldon will respond by
true or false The oligopolist reduces the price of the good by 10%, but the competitors reduced their prices by 8%. As a result, the oligopolist only attracts only an additional 5% consumers from his competitors, This will reduce the total revenue of the oligopolist.
There are 5 subparts to this Questionn. please consider a market served by a monopolist. The monopolist has a linear marginal cost (shown here as Marginal Private Cost, MPCM) and a downward-sloping demand curve D0. Here is a graphical representation of that market. See attached image for graph. 1) As noted in the introduction for Questions 1 through 5, the market is served by a monopolist. Assume that this monopolist is making a positive economic profit. Add any necessary curve(s) to the graph shown above and graphically indicate: The original monopoly price P0 and monopoly quantity Q0. The “socially optimal” output (the output the Benevolent Dictator would choose) QSO. The resulting Consumer Surplus CS0, the resulting Producer Surplus PS0, and the size of Dead-Weight Loss DWL0 if there is such a loss. Positive economic profits π0. (Note that here we asking you to graphically depict the total profits earned by the monopolist and not just the profits earned per unit sold. You may…
2. Acme Pharmaceutical Company discovers a vaccine that prevents the common cold and has a patent that grants it a monopoly on this drug. Acme has plants in both the North America and Europe and can manufacture the drug on either continent at a marginal cost of $10. Assume there are no fixed costs. In Europe, the demand for the drug is QE = 70 - PE, where QE is the quantity demanded when the price in Europe is PE. In North America the demand for the drug is QN 110 PN, where QN is the quantity demanded when the price in North America is PN =
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A monopoly produces a good with a network externality at a constant marginal and average cost of c = $2. In the first period, its inverse demand curve is p 14-1Q. In the second period, its inverse demand curve is p=14-1Q unless it sells at least Q = 8 units in the first period. If it meets or exceeds this target, then the demand curve rotates out by a (it sells a times as many units for any given price), so that its inverse demand curve is p=14- - 1/10. The monopoly knows that it can sell no output after the second period. The monopoly's objective is to maximize the sum of its profits over the two periods. For what values of a would the monopoly earn a higher two-period profit by setting a lower price in the first period? . (round your answer to two decimal places) If a is
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Suppose the monopolist with a marginal cost of 2 is facing two of customers i = {L, H} with the following demand functions: Customer H: qH Customer L: qL = = 6- PH 4- PL The consumer's total payment T;(q) is T;(q) = A; + piq with lump sum payment A and per unit price p. = a. Assume that the monopolist can distinguish between the two groups of consumers. Further, suppose that A₁ 0, meaning the monopolist is charging uniform prices. Find the profit maximizing price the monopolist charges customer H and the price the monopolist charges customer L. b. Assume that the monopolist can perfectly distinguish between the two groups of consumers and can utilize a lump sum payment A¡ > 0. Find the two part tariff the monopolist charges customer H and the two part tariff charged to customer L.
Exercise 5 Consider a monopoly with marginal (and average) costs constant and equal to c. The demand function is not linear, and it is given by q = pa, where q denotes total quantity, p is the price and a > 1. 5.1. Compute the equilibrium price and quantity. 5.2. Compute the equilibrium price and quantity under perfect competition. 5.3. Compute the welfare loss due to monopoly pricing, and give a graphical representation of it.