Econ HW 2

# Econ HW 2 - Economics 610 15,Pink Black,0 Black B Pink...

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A Pink Black B B Black Pink Black Pink 10 , 4 0 , 2 5 , 5 1 , 12 Economics 610 Fall 2010 Assignment #2 Due: 7:00 April 12, 2010 (7 points) Circle the one alternative that best completes the statement or answers the question. 1. If promotional expenditures make demand more elastic, then a. the price should be reduced when the product is promoted b. the price should be increased when the product is promoted c. the price should not be changed when the product is promoted d. the product should qw234212 `12121q12never be promoted 2. If two firms producing substitutes agree to fix prices, then their prices will 1.____________ . If two firms producing complements agree to fix prices, then their prices will 2.____________ . a. increase; 2. increase b. decrease; 2. decrease c. increase; 2. decrease d. decrease; 2. Increase 3. Which of the following conditions must be satisfied by a successful price discrimination scheme? a. The seller must have market power b. The seller must be able to identify different customer groups with different demand elasticities c. The seller must be able to prevent arbitrage between the two groups d. All of the above 4. Suppose that you have 2 buyers. One buyer values your product at \$10, and the other buyer values your product at \$6. You estimate that the probability of getting a high valued customer is 40%. Your marginal costs are \$3. What is your optimal price and expected profit? a. Price at \$6 and earn a profit = \$1 b. Price at \$6 and earn a profit = \$3 c. Price at \$10 and earn a profit = \$1 d. Price at \$10 and earn a profit = \$4 Price at \$10 = 10 – 3 = 7 x 40% = \$2.80 Price at \$6 = 6 – 3 = \$3 5. The strategy underlying price discrimination is a. to charge higher prices to customers who have good substitutes available to them. b. to charge everyone the same price, but limit the quantity they are allowed to buy. c.

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Econ HW 2 - Economics 610 15,Pink Black,0 Black B Pink...

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