Problem Set 1

The inverse aggregate demand in a monopolistic market is equal top(x) = 8x, wherepis the price ineandxis the quantity demanded. Total costs for the monopolist areTC(x) = 2x + x^2/2

Identify, when the monopolist cannot price discriminate, the quantity that maximizes profits (i.e., the optimal quantity).

Identify, when the monopolist cannot price discriminate, the price associated with the optimal quantity.

Identify, when the monopolist cannot price discriminate, the profits associated with the optimal quantity.

Identify, when the monopolist cannot price discriminate, the consumer surplus associated with the optimal quantity.

Identify, when the monopolist cannot price discriminate, the deadweight loss associated with the optimal quantity.

EX 2.

Under the same assumptions about aggregate demand and total costs as in in EX. 1.

Identify, when the individual firm cannot price discriminate under a perfectly competitive market, the quantity that maximizes profits (i.e., the optimal quantity).

Identify, when the individual firm cannot price discriminate under a perfectly competitive market, the price associated with the optimal quantity.

Identify, when the individual firm cannot price discriminate under a perfectly competitive market, the profits associated with the optimal quantity.

Identify, when when the individual firm cannot price discriminate under a perfectly competitive market, the consumer surplus associated with the optimal quantity.

Identify, when the when the individual firm cannot price discriminate under a perfectly competitive market, the deadweight loss associated with the optimal quantity.

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EX 3.

Under the same assumptions about demand and costs as in in EX. 1, assuming that now demand corresponds to the individual demand each identical consumer and total costs are identical for each individual consumer, identify the optimal two-part tarifor the monopolist.

EX. 4.

Describe in words the different practices of price discrimination (of first, second and third degree). MAX 1/2 page.

EX 5.

Figure 1

TOYOTA CAMRY--> BUDGET CONSUMER 27.000$ LUXURY CONSUMER 28.000$

LEXUS ES 350--> BUDGET CONSUMER 30.000$

LUXURY CONSUMER 42.000$

Consider the versioning example we discussed in class. Figure 1 reports the buyers' evaluations of two cars, a compact ("Toyota Corolla") and a luxury ("Lexus") car. For Toyota, the marginal production cost of producing either car is the same.

1. What is the optimal pricing strategy if the marginal cost is equal toe25,000? 2. What is the optimal pricing strategy if the marginal cost is equal toe27,500? 3. What is the optimal pricing strategy if the marginal cost is equal toe30,000?