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ajaz_eco_204_2012_2013_chapter_17__18_PP

# State all assumptions show all calculations and

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Unformatted text preview: pps 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. (f) Assume Pepsi’s actual capacity is 75% of the value you calculated in part (d). What is Pepsi’s optimal uniform price and output if the government requires Pepsi to behave “as if it is perfectly competitive” in 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 (d) 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 (d)). Answer In spring/summer, Pepsi’s capacity is: ( ) If Pepsi is required to behave “as if it is perfectly competitive”, then interior solution would imply However, Pepsi’s capacity in spring/summer is only possible. and Pepsi will try to produce as close to units as Therefore, Pepsi’s optimal output in spring/summer is: And, Pepsi’s optimal uniform price in spring/summer is: ( ) In fall/winter, Pepsi’s capacity is: ( ) If Pepsi is required to behave “as if it is perfectly competitive”, then interior solution would imply However, Pepsi’s capacity in fall/winter is only and Pepsi will try to produce as close to 40 units as possible. Therefore, Pepsi’s optimal output in fall/winter is: 17 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. And, Pepsi’s optimal uniform price in fall/winter is: ( ) 18 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. (j) Suppose that after Pepsi has produc...
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