18-Discussion Questions

18-Discussion Questions - Lecture 18: Price Discrimination...

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Lecture 18: Price Discrimination (I) Suggested questions and exercises (Pindyck and Rubinfeld, Ch.10). Questions: 5, 7, 11 Exercises: 1, 4, 5, 8 Additional Discussion Question (Based on Past Midterms and Finals). QUESTIONS 5. Show why optimal, third-degree price discrimination requires that marginal revenue for each group of consumers equals marginal cost. Use this condition to explain how a firm should change its prices and total output if the demand curve for one group of consumers shifted outward, so that marginal revenue for that group increased. 7. How is peak-load pricing a form of price discrimination? Can it make consumers better off? Give an example. 10. In the town of Woodland, California there are many dentists but only one eye doctor. Are senior citizens more likely to be offered discount prices for dental exams or for eye exams? Why. EXERCISES 1. Price discrimination requires the ability to sort customers and the ability to prevent arbitrage. Explain how the following can function as price discrimination schemes and discuss both sorting and arbitrage: a. Requiring airline travelers to spend at least one Saturday night away from home to qualify for a low fare. b. I nsisting on delivering cement to buyers and basing prices on buyers’ locations. c. Selling food processors along with coupons that can be sent to the manufacturer to obtain a $10 rebate. d. Offering temporary price cuts on bathroom tissue. e. Charging high-income patients more than low-income patients for plastic surgery. 4.
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This note was uploaded on 11/30/2010 for the course ECON 251 taught by Professor Tontz during the Fall '10 term at USC.

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18-Discussion Questions - Lecture 18: Price Discrimination...

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