1. Cinema Theater has estimated the following demand functions for its movies:
Daytime demand, QD = 400 - 50 PD
Nighttime demand, QN = 200 - 20 PN
The marginal cost of serving another customer is $5 and its fixed costs are $100.
a. If the theater uses third degree price discrimination, what price will it charge for daytime tickets? How many will be sold?
b. If the theater uses third degree price discrimination, what price will it charge for nighttime tickets? How many will be sold?
c. What is the profit associated with using third degree price discrimination?
d. If the theater does not use price discrimination and charges the same price to all customers, what is that price and how many tickets will be sold?
e. What happens to profit when the theater does not engage in third degree price discrimination? How much does it rise or fall?
2. Discuss ways firms establish barriers to entry and explain how they benefit firms but not consumers. Give an example of a law or regulation that limits the ability of firms to establish barriers to entry and an example of a law or regulation that helps firms establish barriers to entry.
3. Big Steel Corp. is a price leader in the local steel market. The other, smaller manufacturers set their price based on that established by Big Steel. Discuss how Big Steel should use the information on the supply of steel by other, smaller competitors when it determines its profit maximizing price.
4. Explain how market structure affects market performance and conduct. Identify three types of government regulation that help to improve market performance and conduct and explain how each regulation achieves its objectives and the economic justification for the regulations.