home3 - Homework 3 1. Based on the theory of non-linear...

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Unformatted text preview: Homework 3 1. Based on the theory of non-linear pricing, T-Mobile offers the following monthly plans: 300 whenever minutes for $40 a month, and 600 whenever minutes for $50 a month. T-Mobile's marginal cost of one minute is very low. A new manager at T-Mobile proposes the following ways to raise profits: (a) Raise the fee for the second plan. (b) Raise the fee for the first plan. Explain why the new manager's plans may actually reduce T-Mobile's profits. 2. Problem 2 on p. 290 of the textbook. 3. The airline needs to determine the size of the business and coach seats. It faces two groups of customers: the low-demand with utility U1 (q) = 1000 q - t and the high-demand with utility U2 (q) = 1200 q - t. Here q measures the square footage of the seat. The marginal cost of extra one square foot per flight is $250. Find the profit maximizing solution. 4. Suppose that perfectly competitive employers hire two groups of workers: able with productivity $60000 and the unable with productivity $30000. These groups have equal size. Let the cost of education y be 10000 y for the able workers, and 15000 y for the unable workers. (a) Describe the wages the workers will receive if their ability is known to the employers. (b) Suppose that the ability is not known to the employers, but can be signalled through education. Describe all the separating equilibria, and compare them in terms of welfare for both types of workers. (c) Which equilibrium specifies the most intuitive beliefs for the employer? ...
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This note was uploaded on 09/12/2009 for the course ECON 62240 taught by Professor Safarzadeh during the Spring '09 term at UC Irvine.

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