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Problem Set 02 Solutions

Problem set 02 solutions

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Unformatted text preview: Econ 121 Fall 2010 Prof. Santesteban Problem Set 2 – Solutions 1. You should not follow the consultant’s advice. The consultant is mistakenly focused on average costs instead marginal costs. The MC during off‐peak hours is essentially zero, while the MC during peak hours is the cost of running an additional bus. Therefore, you should encourage off‐peak consumption by lowering the price during this period. Problem 3 4. True. In this way, the firm can price discriminate and increase profits. It charges a higher price for singles and a lower price (per un...
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