Lernkarten
Which-one of the following statements is correct? 2 points
A company introduces a new product. The product is patented, therefore they are the only supplier. Given a constant marginal cost of 10, and a price elasticity of demand of -1.11, the unit price, according the inverse elasticity pricing rule (IEPR), should be:
IEPR: (P* – MC*) / P* = -1/Q,P
50
100
120
none of the above
Which-one(s) of the following statement(s) is/are correct? 2 points
I. Price discrimination (charging different prices for different consumers) offers a firm with market power an opportunity to capture more surplus.
II. Block pricing is an example of third-degree price discrimination. So is the splitting of the price charged to consumers into a subscription and a usage charge.
III. Price discrimination (charging different prices for different consumers) offers a firm, given certain conditions are met, an opportunity to capture more surplus. Yet, this is not true for firms that have no information about so-called reservation prices (i.e., a consumer’s maximum willingness to pay for that unit) or about how the price- elasticity of demand differs across consumers.
All statements are correct.
Only statement I is correct.
Statements I and III are correct.
None of the above
Suppose, a monopolist faces the following demand curve: P = 150 – 2Q. The monopolist has two plants, which each have different marginal cost curves. They are as follows:
Marginal cost curve of plant 1: MC1 = 8 + 16Q1
Marginal cost curve of plant 2: MC2 = 40 + 5Q2
a) Find the monopolists optimal total quantity and price.
For plant 1: Q1 = 0.0625 MC1 – 0.5
For plant 2: Q2 = 0.2 MC2 – 8
Q1 + Q2 = QT = 0.2625 MCT – 8.5
So:
MCT = 3.81QT + 32.385
NOW: MC = MR = 3.81QT + 32.385 = 150 – 4QT
7.81Q = 117.615
Q = 15.1
And P = 119.8 (rounded figure: 120)
Suppose, a monopolist faces the following demand curve: P = 150 – 2Q. The monopolist has two plants, which each have different marginal cost curves. They are as follows:
Marginal cost curve of plant 1: MC1 = 8 + 16Q1
Marginal cost curve of plant 2: MC2 = 40 + 5Q2
Find the optimal division of the monopolist’s quantity between its two plants.
MCT = 3.81QT + 32.385
If Q = 15.1 then MC = 57.531 + 32.385 = 89.916
For plant 1: Q1 = 0.0625 MC1 – 0.5 = 5.11975 (rounded figure: 5)
For plant 2: Q2 = 0.2 MC2 – 8 = 9.9832 (rounded figure: 10)
Which one of the following statements is correct?
First-degree price discrimination describes the practice of charging different uniform prices to different consumer groups or segments in a market
Third-degree price discrimination describes the practice of offering consumers a quantity discount
Screening describes a process for sorting consumers based on a consumer characteristic that (1) the firm can see (such as age or status) and (2) is strongly related to a consumer characteristic that the firm cannot see but would like to observe (such as willingness to pay or elasticity of demand
In a “homogeneous goods” duopoly, two firms, River Inc. and Forest Inc. are fierce competitors. The inverse market demand is given by P = 200 – 0.9Q. This can be rewritten as P = 200 – 0.9Q1 – 0.9Q2 where Q1 denotes River Inc.’s output, and Q2 denotes Forest Inc.’s output. The marginal cost for each firm is 17.
a) Given this inverse market demand function, what is River Inc.’s profit-maximising quantity if Forest Inc. produces 60 units? 2
Q2 = 60
P = 200 – 0.9Q1 – 0.9 × 60 = 146 – 0.9Q1
The corresponding marginal revenue is:
MR = 146 – 1.8Q1
17 = 146 – 1.8Q1
129 = 1.8Q1
Q1 = 71.67 units
In a “homogeneous goods” duopoly, two firms, River Inc. and Forest Inc. are fierce competitors. The inverse market demand is given by P = 200 – 0.9Q. This can be rewritten as P = 200 – 0.9Q1 – 0.9Q2 where Q1 denotes River Inc.’s output, and Q2 denotes Forest Inc.’s output. The marginal cost for each firm is 17.
Determine River Inc.’s so-called “reaction function
P = (200 – 0.9Q2) – 0.9Q1
Therefore:
MR = (200 – 0.9Q2) – 1.8Q1 = 17
183 – 0.9 Q2 = 1.8 Q1
Q1 = 101.67 – 0.5Q2
In a “homogeneous goods” duopoly, two firms, River Inc. and Forest Inc. are fierce competitors. The inverse market demand is given by P = 200 – 0.9Q. This can be rewritten as P = 200 – 0.9Q1 – 0.9Q2 where Q1 denotes River Inc.’s output, and Q2 denotes Forest Inc.’s output. The marginal cost for each firm is 17.
Compute the Cournot equilibrium quantities and price in this market.
Q2 = 101.67 – 0.5Q2
1.5Q2 = 101.67
Q2 = 67.78 units
P = 200 – 0.9 × 67.78 – 0.9 × 67.78
P = 78
