Unformatted text preview: mber 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 ).
(c) Use your answers in parts (a) and (b) to deduce the parameters and in the utility function. Does this consumer
have monotonic preferences over D & H jackets (good 1)? Show all calculations and state any assumptions.
(d) For what price of D & H jackets will a NYC customer maximize or minimize savings? Prove whether savings are
maximized or minimized. Show all calculations and state any assumptions. Hint: Use the expression for from part (b).
(e) Suppose in April 2010, D & H sells jackets in NYC through a two part tariff where each customer pays an access fee
for the right to buy jackets and a “usage” price for each jacket. Use the individual demand curve in part (a) and
calculate the optimal and (answers with decimal places are OK). Graph your solution below. Hints: Allow for the
possibility
, and choose and to
. [Do two part tariff pricing in this part only].
(f) Now suppose that in April 2010 D & H sells jackets in NYC through 1st degree price discrimination. Use the individual
demand curve in part (a) to calculate the optimal prices and number of jackets (answers with decimal places are OK).
Graph your solution below. [Do 1st degree price discrimination in this part only]. (g) [This part assumes uniform prices] Suppose that in April 2010,
utility function:
( ) ( . Consider a typical NYC consumer with the
) Here is savings in dollars and is the number of D & H jackets. Suppose this consumer has an income of
Using values for and from part (c), solve the UMP for the optimal
and (any) Lagrange multipliers given that
. Calculate the marginal utility of relaxing the savings limit constraint. Show all calculations and state any
assumptions. . Question 17.6 6
ECO 204 Chapter 17 & 18: Practice Problems & Solutions for Firms with Market Power: Business Apps and Price Discrimination in ECO 204 (this version 20122013) University of...
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 Fall '14
 Price Discrimination, S. Ajaz Hussain, Sayed Ajaz Hussain

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