HW IV price discimination KEY

HW IV price discimination KEY - Bus 247 Homework Set IV...

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Bus 247 Homework Set IV Fall 2008 This assignment is due, together with your final paper, December 16 th in class. Assignments must be typed and stabled in order to receive credit. 1) When firms are able to achieve perfect price discrimination, a. What is the value of consumer surplus? Zero, all consumer surplus is transferred to the firm b. What share of total social welfare is acquired by the firm? All social welfare is acquired by the firm. There is no net loss to total social welfare. 2) In your own words define arbitrage and describe how the presence of arbitrage may limit a firms ability to price discriminate. The practice of buying and selling to profit from a price difference. 3) A monopolist firm faces two groups of consumers that differ in terms of their elasticity. Group 1: 1 = - 2 Group 2: 2 = - 6 a. Calculate the ratio for the price discriminating monopolist: P 1 P 2 Profit maximization for monopolist discriminating between two groups is given by MR 1 = MR 2 MR i = P
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HW IV price discimination KEY - Bus 247 Homework Set IV...

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