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Unformatted text preview: Problem 5 In this scenario, she can practice twopart 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 ...
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This note was uploaded on 10/15/2008 for the course ECON 171 taught by Professor Hopenhayn during the Spring '07 term at UCLA.
 Spring '07
 Hopenhayn

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