1460p3 - only serves high type consumers and when it serves...

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Economics 1460 Industrial Organization Fall 2007 PROBLEM SET 3 (due November 7) 1. First-time subscribers to the Economist pay a lower rate than repeat suscribers. Is this price discrimination? Of what type? 2. Why do airline companies charge a very high price for tickets bought at the last minute while theaters in Broadway follow the opposite practice? 3. Consider a market where a monopolist faces two types of consumers. The "low types" have a demand function given by: Q = 10 ° p and the "high" types a demand function given by: Q = 20 ° 2 p There are 20% high types and 80% low types on the market. We assume that the monopolist has zero marginal cost. a. Graph these two demand functions and explain why the °rst type of consumers are "low" types and the second type "high" types. b. For any price p 2 [0 ; 10] , compute the pro°t of the °rm, and the surplus of consumers of low and high type. c. Suppose that the monopolist sets a two-part tari/, with usage charge p and access fee F . Compute the optimal two-art tari/ when the monopolist
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Unformatted text preview: only serves high type consumers, and when it serves the two types of consumers. 4. The demand for a product often depends both on the price p and on the service o/ered s . Consider a market where demand is given by: Q = 1 & p + s: A monopolist produces the good at a constant marginal cost c . The service is provided at a cost C ( s ) = 1 2 s 2 : a. Suppose that the monopolist sells directly to the market and chooses both the level of price p and the level of service s . Compute the optimal values of p and s . b. Now suppose that the monopolist must use a retailer to serve the mar-ket. The monopolist chooses a wholesale price w . The retailer chooses both the &nal price p and the level of service s . Compute the optimal levels of w; p and s . Compare the level of service and the price of the &nal product in the presence of a retailer (question b) and when the monopolist sells directly to the market (question a). 1...
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