ajaz_eco_204_2012_2013_chapter_17__18_PP

Case d happens when 20 eco 204 chapter 17 18 practice

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Unformatted text preview: g capacity slightly is zero. From question (5.1), only case B and case D corresponds to . Recall that case B happens when: Case B when () () The demand curve for Pepsi is: In spring/summer: In fall/winter: Therefore, marginal revenue for Pepsi is (using the short cut rule for linear demand curve): In spring/summer: () In fall/winter: () Note that . Therefore, clearly, both in spring/summer and fall/winter, () Thus case B is not a solution. Case D happens when 20 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. Case D when satisfying () is () Therefore, optimal capacity can be solved from the equation: () In spring/summer: In fall/winter: Therefore, Pepsi’s optimal capacity is in spring/summer and in fall/winter. 21 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. (i) Assume Pepsi’s actual capacity is 75% of the value you calculated in part (h). Use your answers to part (a) to solve for Pepsi’s optimal 1st degree price discrimination prices and total output for spring summer and fall/winter. State all assumptions, show all calculations, and derive all figures up to two decimal places. Note: Only if you could not solve for optimal capacity in part (h) then assume capacity of the maximum market size (this is not necessarily the optimal capacity and you should only use this figure if you couldn’t solve part (h)). Answer We already know that case A and B cannot be the solution. Therfore, the solution must be either case C or case D. For case C to be the solution, we need: () Case C when () In spring/summer, Pepsi’s capacity is: ( ) Marginal revenue is: () Note that ( )( ) . Therefore, () And as a result, case C is the solutio...
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This document was uploaded on 01/19/2014.

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