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ECON 2X03 Study Guide - Final Guide: Strategic Dominance, Subgame, Efficiency Wage

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School
McMaster University
Department
Economics
Course
ECON 2X03
Professor
Robert Jefferson

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Document Summary

Invert this for the function we usually plot at p bq = a p p = a-bq: this p is the maximum price a single seller can charge and sill sell the specified quantity, q. If the seller sets price higher than this computed p, quantity demanded will be less than the specified quantity. Goal is maximum profit: charge highest possible price: the seller will not sell the amount s/he wanted to sell. Pure monopoly: how do we determine the profit-maximizing activity level, profit is total revenue less total cost, total cost depends on the quantity produced and sold. Min c(cid:4666)k,l(cid:4667) = wk x k + wl x l s. t. Tr(cid:4666)q(cid:4667) =[p(cid:4666)q(cid:4667)]xq = [a-bq]xq =aq-bq(cid:884: total revenue is just (uniform) price times quantity, the function has positive values for all q between the edges of the bowl (at the edges of the bowl, total revenue is zero) 0 = p(q) = a-bq a = bq q = a/b.

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Related Questions

With two-part pricing

Select one:

A. consumers are required to buy two units of a good.

B. the consumer is limited in the number of units that can be purchased.

C. the average price paid varies with the number of units purchased.

D. the consumer puts down a deposit and then pays the rest when she picks up the goods purchased.

Which of the following sellers is most able to perfectly price discriminate?

Select one:

A. the post office

B. a clothing store

C. a grocery supermarket

D. a college or university

3.Consumers are better off with pricing in the following order: 1)________; 2)________; 3)________.

Select one:

A. competitive market; single-price monopoly; perfect price discrimination

B. single-price monopoly; competitive market; perfect price discrimination

C. competitive market; perfect price discrimination; single-price monopoly

D. Unable to determine.

4.Group price discrimination has ________ consumer surplus than under ________.

Select one:

A. more; an elastic demand curve

B. less; single-price monopoly

C. less; perfect competition

D. more; perfect competition


6. If a firm is to capture all consumer surplus with two-part pricing when customers are different

Select one:

A. it must be able to charge different access fees.

B. it must set unit price below marginal cost.

C. it must set unit price above marginal cost.

D. it cannot charge different prices for access fees.

7. All firms can increase profits using price discrimination.

Select one:

A. true, because firms can sell different versions of a product that is just right for an individual consumer

B. true, because market demand curves are downward sloping

C. false, because consumers aren't forced to buy a producer's products

D. false, because some firms are in competitive markets

8.

For a perfect-price-discriminating monopoly, the marginal revenue curve

Select one:

A. varies for each consumer.

B. is the demand curve.

C. is the same as the monopolist's marginal revenue curve.

D. lies below the demand curve.

A good example of perfect price discrimination is

9. Select one:

A. buying a concert ticket on the street corner.

B. selling concert tickets to individuals on the street corner.

C. buying concert tickets at the ticket window.

D. selling concert tickets at the ticket window.

10. Suppose all individuals are identical, and their monthly demand for Internet access from a certain leading provider can be represented as p = 5 - (1/2)q where p is price in $ per hour and q is hours per month. The firm faces a constant marginal cost of $1. The profit-maximizing two-part tariff yields total revenue of

Select one:

A. $32.

B. $40.

C. $24.

D. $16.

A. A competitive firm

  1. can consider only its location in setting the price.
  2. must base its competitive price on product differentiation.
  3. has the ability to set its own price.
  4. must accept the price determined by the intersection of the market supply and demand curves.
  5. has no supply curve.

B. If a firm is making an economic profit, then

  1. the factors of production are being paid their opportunity costs.
  2. there will be no change in the number of firms if the industry is perfectly competitive.
  3. the factors of production are being paid less than their opportunity costs.
  4. the factors of production are being paid more than their opportunity costs.
  5. the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

  1. marginal revenue is greater than price.
  2. the elasticity of demand is constant.
  3. marginal revenue decreases when the price decreases.
  4. marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

  1. shut down because economic profits are negative.
  2. continue to produce as long as P > AVC.
  3. continue to produce because accounting profits are positive.
  4. set a higher price for its output.
  5. set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

  1. the marginal revenue curve.
  2. perfectly inelastic.
  3. always equal to marginal cost.
  4. the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

  1. monopolistic
  2. oligopolistic
  3. monopolistically competitive
  4. perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

  1. total revenue will fall if the price increases.
  2. total revenue will be unchanged if the price increases.
  3. total revenue will rise if the price increases.
  4. the total supply will increase by an equal amount if demand increases.
  5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

  1. monopoly.
  2. perfect competition.
  3. theories of consumer behavior.
  4. imperfect competition.
  5. the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

  1. perfect competition
  2. monopolistic competition
  3. oligopoly
  4. monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

  1. economic profits are zero.
  2. TR > TC.
  3. TR < TC.
  4. P = AVC.
  5. normal profits are zero.

Suppose you are the proprietor of the only bar in Dallas. Since you are the only place in town for people to get drinks you exercise some market power and face a downward sloping demand curve for drinks given by P = 10 - (3/2)Q for each individual. Your total costs are given by TC = Q. There are 100 individuals with identical demand.

  1. Assuming that you must follow a uniform pricing strategy, what is the profit maximizing price and quantity and the associated profit? What is consumer surplus? Is the market efficient?
  2. If each person is charged their reservation price, what type of price discrimination is this? Assuming you can engage in this pricing scheme, what is your profit maximizing price and quantity and the associated profit? What is consumer surplus? Is the market efficient?
  3. Now assume that you decide to try a two-part tariff scheme instead, charging a price per drink and a cover charge at the door. What is the optimal two-part tariff charged to each person? How many drinks will be sold to each person? What is your total profit associated with this scheme? What is the total consumer surplus? Is the market efficient?
  4. Assume that your clientele is composed of two types: 50 customers are heavy drinkers with individual demand described by P_H = 15 - Q_H and 50 customers are light drinkers with individual demand described by P_L = 10 -3Q_L. Which group would you rather charge a higher price? Why?
  5. Assume that the market is split as described before. There is no constraint on the number of drinks you can sell. You can charge a different price to each group. What is the optimal price and corresponding quantity for each segment of the market? What is your total profit under this scheme? What type of price discrimination is this?
  6. Assume that the market is split as described before. The city of Dallas tells you that can only sell 325 drinks in total. You can charge a different price to each group. What is the optimal price and corresponding quantity for each segment of the market? What is your total profit under this scheme?