ajaz_eco_204_2012_2013_chapter_17__18_PP

Answer springsummer before the maximum willingness to

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Unformatted text preview: ed but before any customers have purchased the total output in part (e), Pepsi management finds out that the maximum willingness to pay for concentrate syrup has fallen by 50%. If Pepsi wants to dispose the total output produced in part (e) by charging uniform prices, how much syrup should it sell? Assume there is no secondary market for unsold syrup. State all assumptions, show all calculations, and derive all figures up to two decimal places. Answer Spring/Summer: Before the maximum willingness to pay (max WTP) had fallen, Pepsi produced wtp, the demand curve becomes: ( )( units. With the fall in the max ) If Pepsi wants to dispose the total output produced in part (5.5) by charging uniform prices, then it must charge the following price: ( ) Fall/Winter: Before the maximum willingness to pay (max WTP) had fallen, Pepsi produced wtp, the demand curve becomes: ( )( units. With the fall in the max ) If Pepsi wants to dispose the total output produced in part (5.5) by charging uniform prices, then it must charge the following price: ( ) 19 ECO 204 Chapter 17 & 18: Practice Problems & Solutions for Firms with Market Power: Business Apps and Price Discrimination in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. (h) Assume Pepsi is a profit maximizer and charges 1st degree price discrimination prices. What is Pepsi’s “optimal capacity” for spring/summer and fall/winter? State all assumptions, show all calculations, and derive all figures up to two decimal places. Hint #1: If Pepsi were to build the production facility for the first time, what capacity would it choose? Hint #2: When is the value of expanding capacity zero? Answer Recall that in 1st degree price discrimination, the demand curve is the curve. We can use general solution to the PMP that we derived in question (5.1). “Optimal capacity” corresponds to the unconstrained maximum i.e. a solution whereby or when marginal profit due to expandin...
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This document was uploaded on 01/19/2014.

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