eco204_summer_2009_practice_problem_20

eco204_summer_2009_practice_problem_20 - University of...

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Unformatted text preview: University of Toronto, Department of Economics, ECO 204 Summer 2009 S. Ajaz Hussain ECO 204 Summer 2009 S. Ajaz Hussain Practice Problems 20 Please help improve the course by sending me an email about typos or suggestions for improvements For the 3rd degree price discrimination problems, it will be useful to refer to this summary: Question 1 Suppose BMW produces cars at a constant marginal cost of $20,000. It's fixed costs are $10 billion. You must advise the CEO on the price and number of cars to be sold in Europe and USA. The demand for BMWs in each market is given by: QE = 4,000,000 100 PE QU = 1,000,000 20 PU where the subscript E denotes Europe and the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only (that is, it can prevent arbitrage). How many cars should BMW sell in each market and what price? Calculate total profits. 1 University of Toronto, Department of Economics, ECO 204 Summer 2009 S. Ajaz Hussain Question 2 Note: Check your answer using spreadsheet mode (Excel 2003 version) Ajax Studios has produced two movies "Canada: No Country for Old Economists" and "Who Am I? John Nash vs. John Nash". The table below shows three Chains' willingness to pay (WTP) for the two movies and Ajax's marginal cost of releasing a movie. All numbers are in `000s of dollars per cinema per week. Each chain has 100 multiscreen cinemas: Chain Chain A Chain B Chain C Marginal Cost Canada: No Country for Old Economists 8 14 20 10 Who Am I? John Nash vs. John Nash 20 14 8 10 (a) Find the optimal weekly prices per screen for releasing the movies separately. Show all calculations and keep explanations brief. (b) Find the optimal weekly prices per screen for releasing the movies as a pure bundle. Show all calculations and keep explanations brief. (c) Find the optimal weekly prices per screen for releasing the movies as a mixed bundle. Show all calculations and keep explanations brief. 2 ...
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