This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Econ 145b. Problem Set 2 (Spring 2009) (with solutions) Please type your solutions or write legibly. Always provide arguments. Each question 1, 2(a), 2(b), 3(a), 3(b) is worth 20 points (100 points total) A monopolistic seller with zero cost of producing a good maximizes expected profits. Given a pricing schedule T that determines the transfer to the seller as the function of quantity bought, a buyer buys quantity q that maximizes the net utility equal to gross utility U ( q ) minus transfer T ( q ) . The buyers gross utility from buying quantity q is U ( q ) = (1 exp ( q )) where equals L with probability and H with probability 1 . Assume that H > L > and that the seller needs to offer the same pricing scheme to both buyer types. The buyers are not coerced to buy; they will buy only if their net utility from buying is nonnegative. We will allow the seller to produce and sell an infinite quantity of good to any buyer ; in line with the above formulas, the buyers gross utility from buying an infinite quantity is . (1) Assuming the seller is constrained to uniform pricing, T ( q ) = pq , compute the profit maximizing price p m ....
View
Full
Document
This note was uploaded on 03/02/2010 for the course ECON econ 145 taught by Professor Obara during the Winter '10 term at UCLA.
 Winter '10
 Obara

Click to edit the document details