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Chapter 11 Solution.pdf

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Department
Economics
Course
ECON 3411
Professor
All Professors
Semester
Fall

Description
Chapter 11Pricing Strategies for Firms with Market PowerChapter 11 Answers to Questions and Problems 1a Since EEE FMbc2 a P60 Q4 and profits46020160 b Charge the maximum price on the demand curve starting at 100 down to 20 for each infinitesimal unit up to Q8 units Profits are 8100205320 c Charge a fixed fee of 320 and a perunit charge of 20 per unit to earn total profits of 320 d Create a package of 8 units and sell the package for 480 Total profits are 3203 a Seconddegree price discrimination b You will make three sales and earn 8 in profit on the first sale 168 and 8 in profit on the last two sales 2128 for a total profit of 16 c Total profits under perfect price discrimination are 8642020 so this strategy would lead to an extra 4You could instead calculate the area of the triangle under demand and above the MCAC curve to get 50518825This formula would be correct if you could sell fractions of a unit and generally will be the same as the discrete calculation for larger sales volumes4 ab Here there are two different groups with different and identifiable elasticities of demand In addition we must be able to prevent resale between the groups5 a Charge a perunit fee equal of 10 which equals marginal costAt this price you will sell 6 unitsThe fixed fee then should be 25010605720 b The optimal perunit price is determined where MRMC or 25080Q10 Solving yields Q3 units and P130 The profits at this output and price are 130103360 Thus you earn 360 more by twopart pricing 1112014 by McGrawHill Education This is proprietary material solely for authorized instructor use Not authorized for sale or distribution in any manner This document may not be copied scanned duplicated forwarded distributed or posted on a website in whole or part
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