Question

For Each of the following observations, check to see if the choices satisfy the Weak Axiom of Revealed Preference (WARP). If it does satisfy WARP, give as much information about the consumer's ranking of the bundles as possible. If it violates WARP, simply write It violates WARP.

a)

Observation	PX	PY	X	Y
1	3	1	2	4
2	1	4	4	1
3	3	2	2	3

b)

Observation	PX	PY	X	Y
1	1	5	3	2
2	3	2	2	1
3	2	4	1	4

2. Suppose there are two types of consumers. The demand for each type of consumer is given by:

Type A: Q = 70 - 2P

Type B: Q = 60 - 3P

Suppose a monopolist has constant marginal cost = 6. Also, for parts a-b, assume that the monopolist is unable to distinguish between the two types of consumers.

a) (4 points) What price should the monopolist charge?

b) (2 points) How much profit will this monopolist make?

Now suppose the monopolist is able to distinguish between the two types of consumers and can effectively price discriminate between them.

c) (4 points) What price should the monopolist charge to each type of consumer?

Price to type A consumers:

Price to type B consumers:

d) (4 points)How much total profit does the price discriminating monopolist make?

e) (2 points) Calculate the price elasticity of demand for Type A consumers at the monopolist’s profit maximizing price.

f) ) (2 points) Calculate the price elasticity of demand for Type B consumers at the monopolist’s profit maximizing price.