A firm would not be able to price discriminate if: a. there was a significant difference in demand between two different sets of consumers. b. there were resale opportunities between the consumers in the different markets. c. it had consumers with different demands that had easily identifiable and distinguishing characteristics. d. it had an unusually high degree of market power.
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A firm would not be able to price discriminate if: Select one: a. there was a significant difference in demand between two different sets of consumers. b. there were resale opportunities between the consumers in the different markets. c. it had consumers with Show more…
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Many schemes for price discrimination involve some cost. For example, discount coupons take up the time and resources of both the buyer and the seller. This question considers the implications of costly price discrimination. To keep things simple, let's assume that our monopolist's production costs are simply proportional to output so that average total cost and marginal cost are constant and equal to each other. a. Draw the cost, demand, and marginal- revenue curves for the monopolist. Show the price the monopolist would charge without price discrimination. b. In your diagram, mark the area equal to the monopolist's profit and call it $X$. Mark the area equal to consumer surplus and call it $Y$. Mark the area equal to the deadweight loss and call it $Z$. c. Now suppose that the monopolist can perfectly price discriminate. What is the monopolist's profit? (Give your answer in terms of $X, Y,$ and $Z$.) d. What is the change in the monopolist's profit from price discrimination? What is the change in total surplus from price discrimination? Which change is larger? Explain. (Give your answer in terms of $X, Y,$ and $Z$.) e. Now suppose that there is some cost associated with price discrimination. To model this cost, let's assume that the monopolist has to pay a fixed cost C to price discriminate. How would a monopolist make the decision whether to pay this fixed cost? (Give your answer in terms of $X, Y, Z,$ and $C$.) f. How would a benevolent social planner, who cares about total surplus, decide whether the monopolist should price discriminate? (Give your answer in terms of $X, Y, Z,$ and $C$.) g. Compare your answers to parts (e) and (f). How does the monopolist's incentive to price discriminate differ from the social planner's? Is it possible that the monopolist will price discriminate even though doing so is not socially desirable?
1. Suppose you have been tasked with regulating a single monopoly firm that sells 50-pound bags of concrete. The firm has fixed costs of $30 million per year and a variable cost of $5 per bag no matter how many bags are produced. a. If this firm kept on increasing its output level, would ATC per bag ever increase? (Click to select)Yes/No. Is this a decreasing-cost industry? (Click to select)Yes/No. b. If you wished to regulate this monopoly by charging the socially optimal price, what price would you charge? $ per bag. At that price, what would be the size of the firm's profit or loss? At that price, the firm's (Click to select)profitloss equals $ million. Would the firm want to exit the industry? (Click to select)YesNo. c. You find out that if you set the price at $6 per bag, consumers will demand 30 million bags. How big will the firm's profit or loss be at that price? $. d. If consumers instead demanded 40 million bags at a price of $6 per bag, how big would the firm's profit or loss be? At that price, the firm's (Click to select)profitloss equals $ million. e. Suppose that demand is perfectly inelastic at 40 million bags so that consumers demand 40 million bags no matter what the price is. What price should you charge if you want the firm to earn only a fair rate of return? Assume as always that TC includes a normal profit.$ per bag.
Andrew D.
12. A monopolistic firm will make decisions on its quantity and price by: a. taking price as given from the market and producing where MR = MC. b. producing where MR = MC and setting the price for this quantity from the demand curve. c. taking quantity as given from the market and setting the price for this quantity from the demand curve. d. producing where MR = MC and setting the price so that P = MR = MC. 13. Suppose firms in monopolistic competitive market are making economic profits, eventually, a. they shut down. b. they exit the industry. c. new firms enter the industry. d. the firms in the market increase their production so that their economic profit disappears. Short Answer Questions Figure A Price and cost (dollars per unit) 1. Figure A shows the cost and demand curves for a monopolist a. What is the value of consumer surplus if the monopoly maximizes profit? b. What is the value of consumer surplus, market output and market price if the monopoly is to operate like a perfectly competitive firm? c. What is the value of deadweight loss? d. Fill in the missing blanks: Compared to a perfectly competitive firm, the monopoly creates ______ and decreases ______.
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