First degree price discrimination and the lowest price and output in the market.

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Answer 1

Question

Chapter 11, Problem 1RQ

To determine

First degree price discrimination and the lowest price and output in the market.

Expert Solution & Answer

Explanation of Solution

Price discrimination is the process of charging different prices for the same commodity from different consumers or on different quantities of the product in the market. The first degree price discrimination is the practice of selling each unit of the commodity at the reservation price of each consumer. This means that the consumer purchases the product at the reservation price of the consumer, which denotes that the marginal revenue will be equal to the price of the commodity sold in the market.

Since the marginal revenue equals the price in the case of the first degree price discrimination, the demand curve of the firm will be the same as the marginal revenue curve of the firm. Thus, the MR = MC will give the profit-maximizing output of the firm in the market. This is obtained at the point where the MC curve intersects the demand curve of the firm. Therefore, the MC will be equal to the price of the last unit sold in the market.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity from different consumers or for different quantities of the product consumed in the market.

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Students have asked these similar questions

5. Some people find options expensive and use more complex structures to reduce the cost. For example, consider buying a call with a strike of $55 and selling a call with a strike of $60. a. What is the cost of establishing this combined position? b. What is the payoff of the combined position if the market price goes to $60? c. What is the payoff of the combined position if the market price goes to $100?

3. An investor has $1,000 to invest. They believe the price of the underlier will increase to $60 within one year. a. How many shares of stock could they buy with the $1,000 at the current price of $50, and how much would they make if the share price increased to $60? b. How many calls with a strike of $55 could they buy for the same $1,000, and how much would they make if the share price increased to $60? c. How much would they make (or lose) from the stock and from the calls if the share price declined to $40? 4. What is the premium on a call with a strike of $0.01? Why is the premium so close to the $50 share price?

1. We want to examine the comparative statics of the Black Scholes model. Complete the following table using the Excel model from class or another of your choice. Provide the call premium and the put premium for each scenario. Underlier Risk-free Scenario price rate Volatility Time to expiration Strike Call premium Put premium Baseline $50 5% 25% 1 year $55 Higher strike $50 5% 25% 1 year $60 Higher volatility $50 5% 40% 1 year $55 Higher risk free $50 8% 25% 1 year $55 More time $50 5% 25% 2 years $55 2. Look at the baseline scenario. a. What is the probability that the call is exercised in the baseline scenario? b. What is the probability that the put is exercised? c. Explain why the probabilities sum to 1.

Answer 2

Question

Chapter 11, Problem 1RQ

To determine

First degree price discrimination and the lowest price and output in the market.

Expert Solution & Answer

Explanation of Solution

Price discrimination is the process of charging different prices for the same commodity from different consumers or on different quantities of the product in the market. The first degree price discrimination is the practice of selling each unit of the commodity at the reservation price of each consumer. This means that the consumer purchases the product at the reservation price of the consumer, which denotes that the marginal revenue will be equal to the price of the commodity sold in the market.

Since the marginal revenue equals the price in the case of the first degree price discrimination, the demand curve of the firm will be the same as the marginal revenue curve of the firm. Thus, the MR = MC will give the profit-maximizing output of the firm in the market. This is obtained at the point where the MC curve intersects the demand curve of the firm. Therefore, the MC will be equal to the price of the last unit sold in the market.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity from different consumers or for different quantities of the product consumed in the market.

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Answer 3

Question

Chapter 11, Problem 1RQ

To determine

First degree price discrimination and the lowest price and output in the market.

Expert Solution & Answer

Explanation of Solution

Price discrimination is the process of charging different prices for the same commodity from different consumers or on different quantities of the product in the market. The first degree price discrimination is the practice of selling each unit of the commodity at the reservation price of each consumer. This means that the consumer purchases the product at the reservation price of the consumer, which denotes that the marginal revenue will be equal to the price of the commodity sold in the market.

Since the marginal revenue equals the price in the case of the first degree price discrimination, the demand curve of the firm will be the same as the marginal revenue curve of the firm. Thus, the MR = MC will give the profit-maximizing output of the firm in the market. This is obtained at the point where the MC curve intersects the demand curve of the firm. Therefore, the MC will be equal to the price of the last unit sold in the market.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity from different consumers or for different quantities of the product consumed in the market.

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Answer 4

Question

Chapter 11, Problem 1RQ

To determine

First degree price discrimination and the lowest price and output in the market.

Expert Solution & Answer

Explanation of Solution

Price discrimination is the process of charging different prices for the same commodity from different consumers or on different quantities of the product in the market. The first degree price discrimination is the practice of selling each unit of the commodity at the reservation price of each consumer. This means that the consumer purchases the product at the reservation price of the consumer, which denotes that the marginal revenue will be equal to the price of the commodity sold in the market.

Since the marginal revenue equals the price in the case of the first degree price discrimination, the demand curve of the firm will be the same as the marginal revenue curve of the firm. Thus, the MR = MC will give the profit-maximizing output of the firm in the market. This is obtained at the point where the MC curve intersects the demand curve of the firm. Therefore, the MC will be equal to the price of the last unit sold in the market.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity from different consumers or for different quantities of the product consumed in the market.

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Answer 5

Chapter 11, Problem 1RQ

To determine

First degree price discrimination and the lowest price and output in the market.

Expert Solution & Answer

Explanation of Solution

Price discrimination is the process of charging different prices for the same commodity from different consumers or on different quantities of the product in the market. The first degree price discrimination is the practice of selling each unit of the commodity at the reservation price of each consumer. This means that the consumer purchases the product at the reservation price of the consumer, which denotes that the marginal revenue will be equal to the price of the commodity sold in the market.

Since the marginal revenue equals the price in the case of the first degree price discrimination, the demand curve of the firm will be the same as the marginal revenue curve of the firm. Thus, the MR = MC will give the profit-maximizing output of the firm in the market. This is obtained at the point where the MC curve intersects the demand curve of the firm. Therefore, the MC will be equal to the price of the last unit sold in the market.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity from different consumers or for different quantities of the product consumed in the market.

Answer 6

Chapter 11, Problem 1RQ

To determine

First degree price discrimination and the lowest price and output in the market.

Expert Solution & Answer

Explanation of Solution

Price discrimination is the process of charging different prices for the same commodity from different consumers or on different quantities of the product in the market. The first degree price discrimination is the practice of selling each unit of the commodity at the reservation price of each consumer. This means that the consumer purchases the product at the reservation price of the consumer, which denotes that the marginal revenue will be equal to the price of the commodity sold in the market.

Since the marginal revenue equals the price in the case of the first degree price discrimination, the demand curve of the firm will be the same as the marginal revenue curve of the firm. Thus, the MR = MC will give the profit-maximizing output of the firm in the market. This is obtained at the point where the MC curve intersects the demand curve of the firm. Therefore, the MC will be equal to the price of the last unit sold in the market.

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity from different consumers or for different quantities of the product consumed in the market.

Answer 7

Chapter 11, Problem 1RQ

To determine

First degree price discrimination and the lowest price and output in the market.

Answer 8

Expert Solution & Answer

Explanation of Solution

Price discrimination is the process of charging different prices for the same commodity from different consumers or on different quantities of the product in the market. The first degree price discrimination is the practice of selling each unit of the commodity at the reservation price of each consumer. This means that the consumer purchases the product at the reservation price of the consumer, which denotes that the marginal revenue will be equal to the price of the commodity sold in the market.

Since the marginal revenue equals the price in the case of the first degree price discrimination, the demand curve of the firm will be the same as the marginal revenue curve of the firm. Thus, the MR = MC will give the profit-maximizing output of the firm in the market. This is obtained at the point where the MC curve intersects the demand curve of the firm. Therefore, the MC will be equal to the price of the last unit sold in the market.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity from different consumers or for different quantities of the product consumed in the market.

Answer 12

Ch. 11.A - Prob. 3E Ch. 11 - Prob. 1RQ Ch. 11 - Prob. 2RQ Ch. 11 - Prob. 3RQ Ch. 11 - Prob. 4RQ Ch. 11 - Prob. 5RQ Ch. 11 - Prob. 6RQ Ch. 11 - Prob. 7RQ Ch. 11 - Prob. 8RQ Ch. 11 - Prob. 9RQ

First degree price discrimination and the lowest price and output in the market.

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First degree price discrimination and the lowest price and output in the market.

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