Class 13s

Class 13s - Department of Economics LeBow College of...

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Department of Economics Fall 2009 LeBow College of Business Economics 301 Drexel University Professor Stehr Class 13 Outline 1) Peak load pricing, 2 part tariff, bundling 1) Monopolistic competition 2) Oligopoly 3) Cournot model Peak load pricing The same marginal cost function is in operation at both times. So, the cost of producing one more unit in the high demand period does not affect the cost of producing one more unit in the low demand period. Example: Finding profit maximizing quantities— Two part tariff -- Entry fee— Usage fee— Example: At any usage fee, the consumer’s willingness to pay the entry fee is his consumer surplus at that usage fee. 1
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Bundling —selling two or more goods as a package Bundling increases the profits of the firm when the reservation prices are negatively correlated (like with Cable TV and different channels). Example: Jugglers String Quartet Sue's Reservation Prices 10 20 Bob's Reservation Prices 20 10 1) Separate tickets a) Charge $10 for each event
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Class 13s - Department of Economics LeBow College of...

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