Discussion section problem set 5 econ 200

Discussion section problem set 5 econ 200 - The maximum...

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Problem Set 5 Discussion Sections Economics 200 We will review Problems 1 and 2 in discussion sections beginning Wednesday, November 11. 1. Consider a monopolist who faces the following demand schedule: Quantity Price 1 20 2 18 3 16 4 14 (a) Calculate marginal revenue for each level of output. (b) Show that for this firm, marginal revenue always equals “new price + (change in price times old quantity)” and that marginal revenue is therefore always less than price. (c) If this firm produces output at a constant average and marginal cost of $12, what is its profit maximizing level of output? 2. Suppose you are a monopolist in the market for Good A and the market for Good B. There are two consumers, Consumer 1 and Consumer 2. Each will buy either 0 or 1 unit of Good A and each will buy either 0 or 1 unit of Good B.
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Unformatted text preview: The maximum they would be willing to pay for these goods (i.e., their reservation prices) are as follows: Good A Good B Consumer 1 15 22 Consumer 2 22 15 You produce both goods at a constant average and marginal cost of $10. (a) If you do not engage in price discrimination and you do not bundle these goods, what price will you charge in each market? How much profit will you earn? (b) If you do engage in price discrimination but you do not bundle these goods, what prices will you charge in each market? How much profit will you earn? (c) If you do not engage in price discrimination but you do bundle these goods, that is, you offer Goods A and B as a package, what price will you charge for the package? How much profit will you earn?...
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This note was uploaded on 04/03/2010 for the course ECON 2407 taught by Professor H.terrell during the Fall '09 term at Maryland.

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