Price Discrimination (solutions at the end)
PERFECT PRICE DISCRIMINATION
Suppose that a firm faces a demand curve for its product of P=10Q.
The
firm has a constant marginal cost of $4 per unit.
If the firm engages in
uniform pricing, what price will the firm charge? What would be the
Consumer and the Producer Surplus? If the firm engages in firstdegree
price discrimination, how much producer surplus will it capture?
BLOCK PRICING
The monthly wholesale inverse demand for Moroccan small carpets in Edmonton is given
by P=1003Q, where quantity is in hundreds and P is the wholesale price in hundred of
dollars. Their supply is monopolized by a local importer. The marginal cost of each batch
(100) of carpets is constant and equals 1 hundreds dollars (hence MC=1).
Calculate the
monopoly surplus. Compare the surplus with the one accruing to the monopoly under
quantity discount where the monopoly charges 67 hundreds of dollars per batch, for the
first 11 batches, and then 34 hundreds of dollars for any additional batches.
TWOPART TARIFF
A movie rental company has 20 customers. Each one has a demand of
Q
20
2p
=

,
where Q is the number of movies rented. The company relevant costs are MC
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