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Econ805mid00

# Econ805mid00 - The Ohio State University Department of...

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The Ohio State University Department of Economics Econ. 805 Prof. James Peck Winter 2000 Midterm Examination Directions : Answer all questions, show all work, and label all diagrams. (1) 25 points A monopolist has many potential customers, represented by the interval, [0,1]. For customer x ! [0,1], consuming one unit of the product provides a benefit of v, but the customer must pay a transportation cost of tx to purchase the product, where t is a positive parameter. The monopolist has a constant marginal cost, c, and no fixed costs. Assume that customers are uniformly distributed across the interval, [0,1], according to the density function, f(x) = 1. In other words, if everyone in the interval [0,x] purchases, the monopolist sells x units of the product. Also assume the following: assumption 1: (v-c)/2 " t " (v-c). (A) Suppose that the monopolist must charge a constant price, p, but that it can also offer to pay a “transportation subsidy” to its customers, as a function of their location, denoted by s(x). That is,

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Econ805mid00 - The Ohio State University Department of...

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