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325Problemset2-Fall05

# 325Problemset2-Fall05 - M preferable 4 Please solve Problem...

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ECON 325, IO (Fall 2005) Christoph Luelfesmann, SFU Homework Assignment #2 This assignment is due on Friday, Oct 14 in class. 1.) Please answer Problem 1, p. 109 [Problem 1, p. 151 in the 2nd ed.] In your answer, focus on First degree and Third degree price discrimination. 2.) Please solve Problem 3, p. 109/110 [Problem 11, p. 152/153]. 3.) Suppose a monopolistic firm M can sell its product to two types of con- sumers, the H and the L individuals. Each of these individuals buys at most one unit, and has a willingness to pay of \$4 ( H individuals) or \$2 ( L individ- uals). M cannot distinguish between both types of customers but it knows that the fraction of H individuals in the market is p . a) Identify the two pricing policies that are potentially optimal for M . b) Depending on the probability p , which of these pricing policies finds
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Unformatted text preview: M preferable? 4.) Please solve Problem 1, p. 159 in PRN [Problem 9, p. 152] (it might be helpful to read ch. 7.5.1 [ch. 3.4] ﬁrst), but with the following modiﬁcations: indicate the ﬁxed costs for quality level z = 1 as F 1 , and those for quality level z = 2 as F 2 (rather than ﬁxing these costs at 65 z 2 ). For this general speciﬁcation, answer questions a) - c). In addition, answer the following: d) Which quality level is eﬃcient (recall how we deﬁned this notion in class) when ﬁxed costs are at arbitrary levels F 1 and F 2 ? For which combination of ( F 1 ,F 2 ) will M in fact provide the eﬃcient quality? For which combinations will he oﬀer a quality level which is too high/low? Please explain. 1...
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