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LA prac

# LA prac - Long Answer Questions for COMM/FRE 295(104 Final...

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Long Answer Questions for COMM/FRE 295 (104) Final Exam (2008) Review Session 1. Consider a monopolist selling to two groups of consumers. (a) Provide two conditions that are necessary for the monopolist to engage in price discrimination. (b) When all consumers are identical, which yields higher profit: perfect price discrimination or two-part pricing? Explain. 2. A monopolist faces demand from two groups, and can price discriminate. The total demand from the first group is Q A = 10 – P and the total demand from the second group is Q B = 12 – 2P. The monopolist’s total cost is C(Q) = 5 + 2Q . Provide the optimal prices that the monopolist will charge and the quantities that the monopolist will sell. 3. Suppose that a monopolist wants to sell to two groups of consumers. All 10 individuals in group A are identical, and the total demand function for this group is Q A = 100 – 20P. All 10 individuals in group B are identical and the total demand function for this group is QB = 150 – 20P. Suppose that the monopolist implements a two- part pricing system, selling to all consumers, with a price per unit equal to 2 dollars and a common fixed fee. Calculate the total revenue of the monopolist. 4. Consider a monopolist producer of flowers, facing demand Q D = 20 – 2P, and constant marginal cost equal to 2 dollars per unit. The purchase of flowers yields a positive benefit to neighbours of the purchaser in the amount of 1 dollar for each unit purchased. (a) How many flowers does the monopolist produce and at what price? (b) What is the socially optimal quantity of flowers that should be sold? 5. Firm A is an incumbent monopolist in a market with total demand given by Q D = 20 – 2p. Firm A has zero costs. Firm B is considering entering the market with zero marginal cost. Firm B would incur a one-time entry fee of 20 dollars if it were to enter the industry. The goods produced by the two firms are identical.

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