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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 ....
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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