The figure below illustrates the practice of international price discrimination by a Chinese shoes company. Figure (a) shows the domestic demand (D) and marginal revenue (MR) schedules faced by the Chinese shoes company in China. Figure (b) shows the demand and marginal revenue schedules faced by the same company in Thailand. Figure (c) shows the combined demand and marginal revenue schedules for the two markets, as well as the company's average total cost (ATC) and marginal cost (MC) schedules of shoes. (a) China (b) Thailand (c) Total Market 12 12 12 10 10 10 8 8 MC ATC 6 6 4. 4 2 MR MR MR 2 4 6 2 4 8. 4 6 10 12 14 16 Quantity of Shoes Quantity of Shoes Quantity of Shoes 4.1 In the absence of international price discrimination, the Chinese shoes company would charge a uniform price to Chinese and Thai customers (Assuming no transportation costs). Determine the firm's profit maximizing output and price, as well as total profit. How much profit accrues to the firm on its Chinese sales and on its sales in Thailand? 4.2 In the case that the Chinese shoes company engages in international price discrimination, determine the price that the firm charges its Chinese buyers and the profits that accrue on Chinese sales. Also determine the price that the firm charges its Thai buyers and the profits that accrue on the sales in Thailand. Does the practice of international price discrimination yield higher profits than the uniform pricing strategy? If so, compare the difference. Price (Dollars) Price (Dollars) Price (Dollars)
The figure below illustrates the practice of international price discrimination by a Chinese shoes company. Figure (a) shows the domestic demand (D) and marginal revenue (MR) schedules faced by the Chinese shoes company in China. Figure (b) shows the demand and marginal revenue schedules faced by the same company in Thailand. Figure (c) shows the combined demand and marginal revenue schedules for the two markets, as well as the company's average total cost (ATC) and marginal cost (MC) schedules of shoes. (a) China (b) Thailand (c) Total Market 12 12 12 10 10 10 8 8 MC ATC 6 6 4. 4 2 MR MR MR 2 4 6 2 4 8. 4 6 10 12 14 16 Quantity of Shoes Quantity of Shoes Quantity of Shoes 4.1 In the absence of international price discrimination, the Chinese shoes company would charge a uniform price to Chinese and Thai customers (Assuming no transportation costs). Determine the firm's profit maximizing output and price, as well as total profit. How much profit accrues to the firm on its Chinese sales and on its sales in Thailand? 4.2 In the case that the Chinese shoes company engages in international price discrimination, determine the price that the firm charges its Chinese buyers and the profits that accrue on Chinese sales. Also determine the price that the firm charges its Thai buyers and the profits that accrue on the sales in Thailand. Does the practice of international price discrimination yield higher profits than the uniform pricing strategy? If so, compare the difference. Price (Dollars) Price (Dollars) Price (Dollars)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The figure below illustrates the practice of international price discrimination by a Chinese
shoes company. Figure (a) shows the domestic demand (D) and marginal revenue (MR)
schedules faced by the Chinese shoes company in China. Figure (b) shows the demand and
marginal revenue schedules faced by the same company in Thailand. Figure (c) shows the
combined demand and marginal revenue schedules for the two markets, as well as the
company's average total cost (ATC) and marginal cost (MC) schedules of shoes.
(a) China
(b) Thailand
(c) Total Market
12
12
12
10
10
10
8
MC ATC
6
6
2
2
MR
MR
MR
2
6
2
4 6
8
10
12
14 16
Quantity of Shoes
Quantity of Shoes
Quantity of Shoes
4.1 In the absence of international price discrimination, the Chinese shoes company would
charge a uniform price to Chinese and Thai customers (Assuming no transportation costs).
Determine the firm's profit maximizing output and price, as well as total profit. How much profit
accrues to the firm on its Chinese sales and on its sales in Thailand?
4.2 In the case that the Chinese shoes company engages in international price
discrimination, determine the price that the firm charges its Chinese buyers and the profits that
accrue on Chinese sales. Also determine the price that the firm charges its Thai buyers and the
profits that accrue on the sales in Thailand.
• Does the practice of international price discrimination yield higher profits than the uniform
pricing strategy? If so, compare the difference.
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