5. Suppose that individual demand for a product is given by QD =1000 - 5P. Marginal revenue is MR = 200 - 0.4Q, and marginal cost is constant at $20. There are no fixed costs.

a. The firm is considering a quantity discount. The first 400 units can be purchased at a price of

$120, and further units can be purchased at a price of $80. How many units will the consumer

buy in total?

b. Show that this second-degree price-discrimination scheme is more profitable than a single monopoly price.

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CHAPTER 11 (Exercise 6 a,b,c; page 310):

6. Suppose an economy produces only two goods, cups of coffee and gallons of milk, as shown in Table 11.E1:

a. Calculate the expenditure on each good and the nominal and real GDP for 2007, the base year.

b. Repeat this exercise for each of the three alter- native cases (1, 2, and 3).

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