ajaz_eco_204_2012_2013_chapter_17__18_PP

Eco 204 s ajaz hussain do not distribute under 1st

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Unformatted text preview: ). Graph your solution below. [Do 1st degree price discrimination in this part only]. Answer Under 1st degree price discrimination, each jacket is sold at a unique price. The optimal number of jackets is found by setting: 57 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. Under 1st degree price discrimination the demand curve is the curve so that: Here each jacket is sold according to: MC $ 1,000 AVC 1st Degree Price Discrimination Prices 720 Individual demand curve and MR curve 300 2.8 q (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. . Answer Earlier we saw that: 58 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. Assuming monotonic preferences (so that ( ( ) the consumer chooses ( ) ) by solving the UMP: ) ( ) With an equality and inequality constraint, the UMP can be solved by: ( [ ) [ The FOCs and Kuhn-Tucker conditions are: ( ) ( ) Start by checking: ( Possibility #1: ) . From the FOC: This implies that: 59 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. The 2nd FOC implies: ( ) ( ) ( ) The 1st FOC implies: All the Kuhn-Tucker solutions are satisfied. Thus one solution is: Possibility #2: . The 1st FOC implies: 60 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. The 2nd FOC implies: ( ) ( ) () ( ) ( ) The 3rd FOC implies: () This violates the condition that and therefore cannot be a solution. 61 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)...
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This document was uploaded on 01/19/2014.

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