F13 IM PS8 Solutions - Professor James A. Hornsten ECON...

Professor James A. Hornsten Problem Set #8 Solutions
ECON 202: Introduction to Microeconomics Pricing, Imperfect Competition & Antitrust
Northwestern University  Fall 2013 Due in class at 12:00PM, Monday, November 18
1. THIRD DEGREE PRICE DISCRIMINATION
Suppose the total demand for movie tickets can be broken down into two segments. The adult segment is
described by P
A
= 100 – Q
A
, while the student segment is described by P
S
= 60 – ½ Q
S
. The constant
marginal (and average total) cost of production is 20. The market is served by a monopoly.
a. Find the profit if the monopoly does not distinguish the groups and just charges a uniform price of
50 to all customers.
A
.
b. Find the profit if the monopoly does distinguish the groups and uses 3DPD. (It can prevent resale)
.
c. Read the article from The Economist about pricing, and then use the 3DPD model from part (a) to
show why it's good advice for a salesperson to “walk away” from some potential student clients.
Profit
$
MR D residual
MC
ATC
Firm Output, q q
SR