book_first_second

book_first_second - Problem 5 In this scenario, she can...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Problem 5 In this scenario, she can practice two-part pricing. For each group, the number of token will be equal to quantity demanded at price $2, which is the marginal cost of a drink. Number of tokens for students = 18 - 3( 2 ) = 12 , and the number of tokens for the adults = 10 2(2) = 6. Now, for each group, the cover charge should equal the consumer surplus received at the given number of tokens. That is, 1 Cover charge for a student = ( 6 - 2 )( 12 ) + 2( 12 ) = 48 2 1 Cover charge for an adult = ( 5 - 2 )( 6 ) + 2( 6 ) = 21 2 Therefore, her profits = Total revenue total costs of drinks 1 1 = ( 6 - 2 )( 12 ) + 2( 12 ) + ( 5 - 2 )( 6 ) + 2( 6 ) - 2( 12 ) - 2( 6 ) = 33 2 2 Problem 6 Suppose the marginal values of the first minute for three groups are V1, V2, and V3 respectively. Since the value of a marginal minute for each group declines at the rate of $0.0004 per minute used, then the demand curves consistent with this pricing are: V1 - 0.0004 500 = 50 / 500 V1 = 0.3 P1 = 0.3 - 0.0004Q1 V1 - 0.0004 750 = 62.5 / 750 V1 = 0.383 P2 = 0.383 - 0.0004Q2 V1 - 0.0004 1000 = 75 / 1000 V1 = 0.475 P3 = 0.475 - 0.0004Q3 The surplus each group can enjoy is: 1 50 CS1 = ( 0.3 - )( 500 ) = 50 2 500 1 62.5 CS 2 = ( 0.383 - )( 750 ) = 112.5 2 750 1 75 CS 3 = ( 0.475 - )( 1000 ) = 200 2 1000 ...
View Full Document

This note was uploaded on 10/15/2008 for the course ECON 171 taught by Professor Hopenhayn during the Spring '07 term at UCLA.

Ask a homework question - tutors are online