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hw4 - 4 State whether each of the following corresponds...

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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? b. What share of total social welfare is acquired by the firm? 2) In your own words define arbitrage and describe how the presence of arbitrage may limit a firms ability to price discriminate. 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 b. If P 2 =6, what is the value of P 1 ? c. Which group of consumers must pay the higher price and why? d. Suppose that the elasticities of group 1 and group 2 were equal, could the firm still do better through practicing price discrimination, why or why not?
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Unformatted text preview: 4) State whether each of the following corresponds more closely to bundling or tying. a. Lift tickets at a ski resort. b. “Buy one get one free” offers. c. Purchase of cell phone minutes. d. Purchase of cell phone plans. (phone, minutes, text, web, etc. .) e. Sale of Windows operating system coupled with Explorer net browser. 5) Measured in terms of net loss to total social welfare, would you say perfect price discrimination is inefficient, why or why not? 6) Are consumers made better off or worse of when firms practice price discrimination? In your answer you should discuss the consumers welfare in contrast to both a perfectly competitive market and on in which a monopoly dominates. 7) Calculate the firms price of a bundle of 18 units for a consumer whose demand curve is given by, p = 80 − 4q...
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