BSc II Micro II Problem Set

BSc II Micro II Problem Set - Name: Problem Set #2 Micro II...

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Name: Problem Set #2 Micro II – Spring Term 2010 DUE DATE: 15 th February, 2010 NO LATE PROBLEM SETS WILL BE ACCEPTED! 1. (Third Degree Price Discrimination) Suppose that for some good, the marginal cost of  production is $5.  Demand comes from two sources, senior citizens and the rest of the  population.  Senior citizen demand is given by the inverse demand function  P seniors  = 15 – Q/500.  Demand by the rest of the population is given by the inverse  demand function P rest  = 20 – Q/2000. a. If a monopolist facing these two demands must set a single price for the good, what  price would it optimally set?  What would be its profit? b. Suppose this monopolist could set two prices, one for seniors and another for regulars.  What prices maximize profit and what is that level of profit? 2. (Third Degree Price Discrimination) Suppose a firm sells to students and others at a  single price of $10 per unit.  At this price, it sells 10,000 units in total; 2,000 to students  and 8,000 to the others (non-students).   At the price of $10, demand by students has  elasticity -3, while demand by the others has elasticity -1.5.   a. Suppose the firm decided to raise the price it charges non-students by $0.10.  At the 
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This note was uploaded on 04/19/2011 for the course ECON 101 taught by Professor Gul during the Spring '11 term at Lahore School of Economics.

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BSc II Micro II Problem Set - Name: Problem Set #2 Micro II...

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