{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

PAM200_Section10_Notes

PAM200_Section10_Notes - PAM200 Section 10 Problem 12.3 P Q...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
PAM200 – Section 10 Problem 12.3. a) With demand 20 P Q = - , 20 2 MR Q = - . (remember Q P Q P MR + = ). A profit-maximizing firm charging a uniform price will set MR MC = . 20 2 2 5 Q Q Q - = = At this quantity, price will be 15 P = . At this price and quantity profit will be 2 15(5) ( 5 ) 50 F F π π = - + = - Therefore, the firm will earn positive profit as long as 50 F < . b) A firm engaging in first-degree price discrimination with this demand will produce where demand intersects marginal cost: 20 – Q = 2 Q or Q = 6.67 units. Its total revenue will be the area underneath the demand curve out to Q = 6.67 units; .5(20 13.33)(6.67) 13.33(6.67) 111.16 TR = - + = . Profit will be 2 111.16 ( 6.67 ) 66.67 F F π π = - + = - Therefore, profit will be positive as long as 66.67 F < . Comparing the solution to parts (a) and (b), for values of F between 50 and 66.67 the firm would be unwilling to operate unless it is able to practice first-degree price discrimination.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Problem 12.4. a) The firm would maximize profit by producing until MR = MC , or 40 – 6 Q = 2 Q . Thus Q = 5 and the profit-maximizing price is P = 25. With MC = 2 Q
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}