Question: This chapter explains that a firm that engages in second-degree price discrimination charges the same consumer different prices for different units of a good. You

This chapter explains that a firm that engages in second-degree price discrimination charges the same consumer different prices for different units of a good. You are a monopolist with many identical customers. Each will buy either zero, one, or two units of the good you produce. A consumer is willing to pay $50 for the first unit of this good and $20 for the second. You produce this good at a constant average and marginal cost of $5. For simplicity, assume that if a consumer is indifferent between buying and not buying that he will buy.
a. If you could not engage in second-degree price discrimination, what price would you charge? How much profit per customer would you earn?
b. Suppose you offer your customers what seems to be a very generous deal: “Buy one at the regular price of $50, and get 60 percent off on a second.” How many units of this good will each customer buy? How much profit per customer will you earn?

Step by Step Solution

★★★★★

3.47 Rating (173 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a This part of the question is similar to part a of Problem 9 above ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

723-B-E-M-E (5234).docx

120 KBs Word File

Students Have Also Explored These Related Economics Questions!

This chapter explains that investment can be increased both by reducing taxes on private saving and by reducing the government budget deficit. a. Why is it difficult to implement both of these...

This chapter explains that signaling refers to an action that an individual with private information takes in order to convince others about his information. Screening also involves private...

Section 17.4 of this chapter explains that the pay of professional athletes depends on their marginal revenue product (MRP). You likely know that college football and basketball are very popular...

Why might salt be a resource with a high cost in one market and a very low cost in another market? (1 point) Trade could affect costs. Its supply could be scarce in one market and very great in...

1. (01.01 MC) Why might salt be a resource with a high cost in one market and a very low cost in another market? (1 point) Trade could affect costs. Its supply could be scarce in one market and very...

Why might salt be a resource with a high cost in one market and a very low cost in another market? (1 point) Trade could affect costs. Its supply could be scarce in one market and very great in...

A.. 1) As new firms enter a monopolistically competitive industry, it can be expected that: a.Profits of existing firms will fall. b.Market price will rise. c.Market demand will rise. d.The profits...

A production possibility curve would ________ if the availability of an input decreased and would ________ if a lack of technology decreased production efficiency. (1 point) shift outward; shift...

Task02. 1.) What is the main difference between a competitive firm and a monopoly? a. A competitive firm owns a key resource, but a monopoly firm does not. b. A competitive firm is a price taker, and...

1. A firm is charging a different price for each unit purchased by a consumer. This is called: Select one: a. fourth-degree price discrimination. b. third-degree price discrimination. c. fifth-degree...

What are some possible roles hip hop can play in activism and social change? Do hip hop artists have a responsibility to also be activists? What about the art form of hip hop (graffiti, breakdancing,...

Gabriel needs to purchase at least 30 party decorations. The Party Palace charges $0.50 per decorative streamer and $0.25 per balloon, including tax. Which combination of streamers and balloons can...

If a stock's returns are uncorrelated with inflation, what is its inflation beta? Multiple choice question. 1 0 + 1 infinite

The Soft-Flow Ink Ltds income statement for the preceding year is presented below. Except as noted, the cost/ revenue relationship for the coming year is expected to follow the same pattern as in the...

A publisher faces the following demand schedule for the next novel from one of its popular authors: Price Quantity Demanded $100......... 0 novels 90......... 100,000 80......... 200,000 70............

A small town is served by many competing supermarkets, which have the same constant marginal cost. a. Using a diagram of the market for groceries, show the consumer surplus, producer surplus, and...

A company is considering building a bridge across a river. The bridge would cost $2 million to build and nothing to maintain. Number of Crossings, Price per Crossing in Thousands $8........... 0...

Greta, an elderly investor, has a degree of risk aversion of A = 4 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as...

normal distribution is observed from the number ofrentals perweek for a certain car rental company. If the mean is 15rentals and the standard deviation is 3 rentals, what is the probability that on a...

Item 1: For Entity A, classify each transaction as either an operating activity "OA", an\ investing activity "IA," or a financing activity "FA," or a noncash investing and financing\ activity "NC."\...