ajaz_eco_204_2012_2013_chapter_17__18_PP

E assume pepsis actual capacity is 75 of the value

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Unformatted text preview: ss 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. (e) Assume Pepsi’s actual capacity is 75% of the value you calculated in part (d). Use your answers to part (a) to solve for Pepsi’s optimal uniform price and output 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 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: ( () ( )( ) ) 15 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. Note that . Therefore, () And as a result, case C is the solution. 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: ( ) Marginal revenue is: ( () Note that ( ) )( ) . Therefore, () And as a result, case C is the solution. Therefore, Pepsi’s optimal output in fall/winter is: And, Pepsi’s optimal uniform price in fall/winter is: ( ) 16 ECO 204 Chapter 17 & 18: Practice Problems & Solutions for Firms with Market Power: Business A...
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