2.Suppose the firm uses a two-part tariff to implement first-degree price discrimination. Determine the tariff to be applied to each type of consumer. Determine the profit that the firm will achieve. 3. How could the firm achieve the same result using take-it-or-leave-it offers? 4. Now suppose the firm cannot identify each consumer’s utility function. What take-it-or-leave-it offers should the firm propose to ensure incentive compatibility? How

2.Suppose the firm uses a two-part tariff to implement first-degree price discrimination. Determine the tariff to be applied to each type of consumer. Determine the profit that the firm will achieve. 3. How could the firm achieve the same result using take-it-or-leave-it offers? 4. Now suppose the firm cannot identify each consumer’s utility function. What take-it-or-leave-it offers should the firm propose to ensure incentive compatibility? How

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter6: Demand Relationships Among Goods

Section: Chapter Questions

Problem 6.14P

See similar textbooks

Similar questions

Joe has moved to a small town with only one golf course. His demand curve is P = 120 – 2Q where Q is the number of rounds of golf he plays per year. The manager of the golf course offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds of golf as he wants to at $20 per round. The golf course’s Marginal Cost is $20. - If the golf course wishes to implement a two-part pricing model, what membership fee will maximize revenue for the golf course? Please show your calculations. - How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain. - Would someone who just occasionally plays golf (perhaps 1 or 2 rounds once every 2 months) prefer two-part pricing as given above, or would they prefer to pay a price of $100 per round without any membership fee? Please explain.
GameZone, a video games store, is considering the best way to price two new games – a first-person shooter (FPS) and a racing game. There are four types of consumers that might buy the games with roughly equal numbers of each type, and their willingness to pay (WTP) for each game is detailed in the table below (assume that the willingness-to-pay for a second game of the same type is zero). How should Gamezone price the two games separately to maximise revenue? How should Gamezone price a bundle of both games to maximise revenue? Is there an alternative (involving bundling) that generates more revenue than either single prices or a bundle alone? Under what condition/s is bundling likely to increase profits for a firm? Consumer Type WTP for FPS game WTP for racing game A $120 $70 B $70 $120 C $160 $10 D $10 $160
Suppose the firm notices that consumers tend to buy both Good A and Good B. As a result, the firm considers practicing bundling. The information below shows the maximum price each consumer (Consumer 1 and Consumer 2) is willing to pay for each individual good.Consumer 1:Maximum price for Good A = $400Maximum price for Good B = $250 Consumer 2:Maximum price for Good A = $600Maximum price for Good B = $100 1.1 What is the maximum amount of revenue that the firm can generate if it sells Good A and Good B separately (without bundling)?1.2 Calculate the profit maximising bundling price? 1.3 Calculate the total revenue that the optimal bundled price will generate for the firm?
A golf cub’s owner has commissioned a market study that estimates the average customer’s monthly demand curve for playing 18-hole golf game to be Q=50 – 0.5P, where Q stands for the number of 18-hole golf game, and P is the green fee. The marginal cost is given by MC=20. (1) Under two-part pricing strategy, what is the optimal amount of green fee to charge for one round of 18-hole golf game? (2) Under two-part pricing strategy, what is the optimal amount of membership due? (3) Under two-part pricing strategy, what is the size of the profit obtained from the average customer?
6. You estimate that a typical consumer's inverse demand function is P = 200- 20Q and your cost function is C = 80Q. Determine the optimal two-part pricing strategy. How much will 4 consumers pay?
Using a diagram of either the profit-maximising firm or the consumer choice model, demonstrate how two-part pricing can increase profits for the firm compared with a single price per unit. Why does two-part pricing work best for goods with homogeneous demand?
You are the manager of a firm that charges customers $16 per unit for the first unit purchased and $12 per unit for each additional unit purchased in excess of one unit. The accompanying graph summarizes your relevant demand and costs. a. What is the economic term for your firm’s pricing strategy? b. Determine the profits you earn from this strategy. c. How much additional profit would you earn if you were able to perfectly price discriminate?
Joe has just moved to a small town with only one golf course, the Northlands Golf Club. His inverse demand function is p=140-2q, where q is the number of rounds of golf that he plays per year. The manager of the Northlands Club negotiates separately with each person who joins the club and can therefore charge individual prices. This manager has a good. idea of what Joe's demand curve is and offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds as he wants at $20, which is the marginal cost his round imposes on the Club. Joe marries Susan, who is also an enthusiastic golfer. Susan wants to join the Northlands Club. The manager believes that Susan's inverse demand curve is p=120-2q. The manager has a policy of offering each member of a married couple the same two-part prices, so he offers them both a new deal. What two-part pricing deal maximizes the club's profit? Will this new pricing have a higher or lower access fee than in Joe's original…
As we shall see in Chapter 15, a firm may sometimes seek to differentiate its product from those of its competitors in order to increase profits. In this problem we examine the possibility that such differentiation may be "spurious"- that is, more apparent than real and that such a possibil- ity may reduce the buyers' utility. To do so, assume that a consumer sets out to buy a flat screen television (y). Two brands are available. Utility provided by brand 1 is given by U(x, yı) = x + 500 ln(1 + y¡) (where x represents all other goods). This person believes brand 2 is a bit better and therefore provides utility of U(x, y2) = x + 600 In(1 + y2). Because this person only intends to buy one television, his or her purchase decision will determine which utility function prevails. a. Suppose p, = 1 and I = 1000, what is the maxi- mum price that this person will pay for each brand of television based on his or her beliefs about qual- ity? (Hint: When this person purchases a TV, either Y1 = 1,…
Homework(Ch 15) 7. Price discrimination and welfare Suppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph sho the market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $30 per pair of Ooh boots. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means that marginal cost curve is also equal to the average total cost (ATC) curve. First, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the same price for Ooh boots regardless of the consumer's willingness and ability to pay. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamon symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the…
3.In Avenger City, there are various fried chicken consumers withFea es like Captain America, Thor and Black panther. Consumers with Characteristics of Captain America has a demand function for fried chicken with DCA(p)=10-2p, while Thor is DT(p)=5-p and Black Panther is DBP(p)=20-4p. The number of consumers with characteristics such as Captain America is 50, Thor 100 and Black Panther 150. If the price of Fried Chicken is $5, then:A. What is the total demand for fried chicken for consumers withFeatures like Captain America?B. What is the total demand for fried chicken for consumers withFeatures like Thor?C. What is the total demand for fried chicken for consumers withFeatures like Black Panther?D. What is the total demand at market level for fried chicken whenthe price is $5? If the price of fried chicken is $10, then:A. What is the total demand for fried chicken for consumers withFeatures like Captain America?B. What is the total demand for fried chicken for consumers withFeatures…
Many advertising slogans seem to be asserting something about people's preferences. How would you capture the following slogans with a mathematical statement about the utility function? Either find a utility function for each of the examples or discuss what properties should it have. a) Promise margarine is just as good as butter. b) Things go better with Coke. c) You can't eat just one Pringle's potato chip. d) Krispy Kreme glazed doughnuts are just better that Dunkin' Donuts