Cost of producing the product its good to sell more

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cost of producing the product, it’s good to sell more. The coupon price is prob- ably above marginal cost (just like the drug price in Africa): The impulse shop- pers pay the high price, and the careful shoppers pay the low price. As long as both prices are above marginal cost, this is a reasonable business decision. Solution Solution
3. a. When will a firm find it easier to price discriminate: before the existence of eBay or afterward? b. Which of the two “principles of price discrimination” does this invoke? 3. a. Before: eBay makes it easy for people who “buy cheap” to resell their products anonymously. Solution
Cowen3e_CH14_Solutions.indd 3 29/06/15 11:06 AM
S-4     CHAPTER 14     Price Discrimination and Pricing Strategy If one of these laws passes, and it becomes effortless to buy AIDS drugs from Africa or antibiotics from Latin America—drugs that are made by the same compa- nies and have essentially the same quality controls as the drugs here in the United States—how will drug companies change the prices they charge in Latin America and Africa? Why? 4. The equilibrium price will rise in Latin America and Africa, because the drug companies will know that much of what they send there will wind up back in the United States. 5. Some people think that businesses create monopolies by destroying their competition, and there is certainly some truth to that. But as we learned from Obi-Wan Kenobi, “[Y]ou will find that many of the truths we cling to depend greatly on our own point of view.” For instance, some people (Convenience Shop- pers) love shopping at one particular store and will switch stores only when a prod- uct is outrageously expensive, while other people (Bargain Shoppers) will gladly spend hours looking through newspaper advertisements searching for the best deal. a. When both kinds of people, the Convenience Shoppers and the Bargain Shoppers, are shopping at the same Walmart, who is more likely to stick to their prearranged shopping list, and who is more likely to splurge on a little some- thing? b. Which group does Walmart have monopoly power over? Which group does Walmart have no monopoly power over? c. Does this mean that the same shop can simultaneously be a “monopolist” to some customers and a “competitive firm” to other customers? Why or why not? d. Does this mean that Darth Vader really did kill Anakin Skywalker? 5. a. The Bargain Shoppers will stick to their prearranged, low-price shopping list. The Convenience Shoppers will splurge. b. Walmart has monopoly power over Convenience Shoppers: They will buy whatever looks good. Walmart will have little power over the Bargain Shoppers: When these shoppers walk into Walmart, they only “see” the good with the competitive price. c.

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