Discrimination%20-%20Random%20Demand

Discrimination%20-%20Random%20Demand - Future demand for...

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3 rd Degree Price Discrimination and Random Demand Managerial Economics Maymester 2010 Your profit maximizing firm sells in two markets, Market A and Market B. Demand for its product in these markets are given by Q A = 440 – 20P A and Q B = 760 – 40P B . Your cost of production is C(Q) = 300 + 8Q + (1/20)Q 2 , with marginal cost dC(Q)/dQ = 8 + (1/10)Q. If you are not able to separate these markets, what price will you charge? What will your economic profit be? How many units of output are you selling in Market A at this price? Market B? What is marginal revenue in Market A? Market B? If you could separate these markets and practice 3 rd price discrimination should you raise or lower your price in Market A? in Market B? If you are able to separate these markets and practice 3 rd degree price discrimination, what price will you charge in Market A? Market B? What will your economic profits be?

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Unformatted text preview: Future demand for your product is random. Demand will be HIGH, Q = 1,000 – 2P, with probability p HIGH = 0.4. Demand will be MEDIUM, Q = 500 – P, with probability p MEDIUM = 0.4. Demand will be LOW, Q = 250 - ½ P, with probability p LOW = 0.2. You must commit to a production decision today, before you know what demand turns out to be. Your future price and profits are random variables. Your cost of production C(Q) = 15,000 + 250Q. You manage a profit maximizing firm. You will produce ________units of output. Your expected profit will equal _________ and the standard deviation of your profits (a measure of risk confronting shareholders) will equal _____________....
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This note was uploaded on 02/06/2011 for the course ECON 415 taught by Professor Holland during the Summer '09 term at Purdue.

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Discrimination%20-%20Random%20Demand - Future demand for...

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