ajaz_eco_204_2012_2013_chapter_17__18_PP

Do not distribute question 175 for this question use

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: between markets 1 and 2 by $1 is: By the envelope theorem the marginal profit of increasing the cost of arbitrage between markets 2 and 3 by $1 is: Since D & H should raise the cost of arbitrage between Boston and Toronto. 48 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. Question 17.5 [For this question, use information from Question 17.4] Recall that D & H has 10 individual customers in NYC (“market 1”). (a) Recall from question 1 (a) that the NYC market demand curve is: Assuming all NYC customers are identical, use this market demand curve to derive the individual NYC customer’s demand curve. Show all calculations and state any assumptions. Answer: The NYC market has 10 customers. Denote individual demand by definition it must be that: . Assuming NYC consumers are price takers, by We know that: This implies: Substitute in: ( ) 49 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. We can check if this is right. In January 2010, same answer from: and so that each customer bought 1 jacket. We get the 50 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. (b) [This part should be answered independently of part (a)] Suppose each individual NYC customer has the utility function: ( ) ( ) Here is savings in dollars and is the number of D & H jackets. Denote income by and the price of good 1 (D & H jackets) by . Solve the UMP and derive expressions for and in terms of the parameters and (i.e. don’t use numbers for ). Answer: Note that is savings in dollars so that the consume...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online