problem set 6_soln

# Intermediate Microeconomics: A Modern Approach, Seventh Edition

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P 1) Part a (i). 3 rd Degree Price Discrimination P L = P H , K L = K H = 0 * Inefficiency in both markets * Price between the monopoly price w/ Seperate Markets q(L) q(H) Q Deadweight Deadweight Loss in Low Market Loss in Low Market pq 2 ( ) V q T θ 1 ( ) V q T θ T q

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Degree Price Discrimination , K = K = 0 H L H * Inefficiency in both markets * Priced as independent Monopolies Q P q(L) q(H) 1) Part a (ii). 3 L rd P P Deadweight Deadweight Loss in Low Market Loss in Low Market 2 ( ) V q T θ 1 ( ) V q T θ T pq q
P q(L) q(H) Fixed Fee 1) Part a (iii). 3 rd Degree Price Discrimination P L = P H , K L = K H * Inefficiency in both markets * Price Decreases from part (i) due to value of fixed fees Q Deadweight Deadweight Loss in Low Market Loss in Low Market pq T θ 2 V q ( ) T θ 1 V q ( ) T q

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2 ( ) V q T θ 1 ( ) V q T θ T pq P Q q(L) q(H) L 1) Part a (iii). 1 Degree Price Discrimination , K * Efficiency in both markets * Price = Marginal Cost (zero) L H H st P P K Fixed Fee q
P q(L) q(H) Fixed Fee 1) Part b (i). 2 rd Degree Price Discrimination P L = P H , K L = K H * Inefficiency in both markets * Note that this is identical to part a (iii) Q Deadweight Deadweight Loss in Low Market Loss in Low Market pq T θ 2 V q ( ) T θ 1 V q ( ) T q

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2 ( ) V q T θ 1 ( ) V q T θ T pq P Q q(L) q(H) Deadweight Loss in Low Market L 1) Part b (ii). 2 Degree Price Discrimination , K * Inefficiency in low market * Efficiency in high market * IC constraint gives High market Positive Rents L H H rd P P K Fixed High Low Fixed q
P Low Fixed High Fixed q(L) q(H) Deadweight Loss in Low Market T 1) Part b (iii). 2 rd Degree Price Discrimination P L P H , K L K H , Q L constrained * Inefficiency in low market * Efficiency in high market * IC constraint gives High market Positive Rents * Quality constraints increases monopolists Rents pq θ 2 V q ( ) T 1 ( ) T θ V q q

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