This chapter explains that a firm that engages in second-degree price discrimination charges the same consumer different prices for different units of a good. You are a monopolist with many identical customers
Each will buy either zero, one, or two units of the good you produce. A consumer is willing to pay $50 for the first unit of this good and $20 for the second. You produce this good at a constant average and marginal cost of $5 . For simplicity, assume that if a consumer is indifferent between buying and not buying that he will buy. a. If you could not engage in second-degree price discrimination, what price would you charge? How much profit per customer would you earn? b. Suppose you offer your customers what seems to be a very generous deal: "Buy one at the regular price of $50, and get 60 percent off on a second." How many units of this good will each customer buy? How much profit per customer will you earn?
a. This part of the question is similar to part (a) of Problem 9 above. The only sensible prices to consider are $50 and $20 . You will earn a profit per customer of $50 - $5 = $45 if charge $50, you will earn a profit per customer of $40 - $10 = $30 if you charge $20, and therefore you should charge a price of $50
b. A consumer will buy two units when you offer "Buy one at the regular price of $50, 60 percent off on a second." 60% off means the price of the second unit will be $50 – (60% x $50) = $20, which equals your customer's willingness to pay for a second unit. Your total revenue per customer will be $50 + $20 = $70, your total cost per customer will be $10, and your profit per customer will be $70 - $10 = $60
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The relationships between elasticity and total revenue hold because
A. total revenue equals price divided by quantity demanded. B. total revenue equals price times quantity demanded. C. a drop in price has two opposing effects on the two components of the formula. D. both b and c are true.
Government policies which reduce the price of education increase ________ in the AK growth models or increase ________ in the production function for new ideas in the two-sector growth model
A) the capital stock; the productivity of researchers B) the efficiency index; the size of the labor force C) the proportion of the labor force devoted to research; the capital stock D) the productivity of researchers; the size of the labor force
Refer to Figure 7.1. At output level Q3
A) average fixed cost reaches its minimum. B) average total cost reaches its minimum. C) average variable cost reaches its minimum. D) marginal cost reaches its minimum. E) all of the above
As suppliers and potential suppliers of exhaustible resources continually calculate whether to extract now or in future, and how much to extract, an equilibrium arises when:
a. the cost of extracting such resources is equal to its price. b. the rate of return for such resources equals the rate of interest on alternative uses of the funds. c. the cost of extracting such resources is equal to the price of the commodity using these resources. d. the price of such resources is equal to the rate of interest of bank accounts and other interest-bearing investments. e. the rate of return on alternative investments is equal to the cost of extracting such resources.