Assignment 6(1).docx - BU.220.620 ECONOMICS FOR DECISION...

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BU.220.620 ECONOMICS FOR DECISION MAKING Prof. Magdalena Barreiro, Ph.D Assignment 6: Price Discrimination Upload one document per group to Blackboard. All group member’s names should be included 1. Suppose you have the following demand schedule for DeBeers a monopolist in the market for diamonds (remember Assignment 5): Price of diamond Quantity of diamonds demanded $500 0 400 1 300 2 200 3 100 4 0 5 Suppose DeBeers can now price-discriminate perfectly among all five of its potential customers. De Beers’s marginal cost is constant at $100. There is no fixed cost. a. If De Beers can price-discriminate perfectly, to which customers will it sell diamonds and at what prices? b. How large is each individual consumer surplus? How large is total consumer surplus? Calculate producer surplus by summing the producer surplus generated by each sale. 2. The Collegetown movie theater serves two kinds of customers: students and professors. There are 900 students and 100 professors in town. Each student’s willing- ness to pay for a movie ticket is $5. Each professor’s willingness to pay for a movie ticket is $10. Each will buy only one ticket. The movie theater’s marginal cost per ticket is constant at $3, and there is no fixed cost. a. Suppose the movie theater cannot price-discriminate and charges both students and professors the same price per ticket. If the movie theater charges $5, who will buy tickets and what will the movie theater’s profit be? How large is consumer surplus?

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