1. You compete with many firms offering similar products (monopolistic competition). An economic consulting firm has estimated the own-price elasticity for your most profitable product is -1.50. Your marginal cost is constant at $75 across most of your production volume capability. What price will maximize profits? Show the computation.
2. Define the types of price discrimination and explain why 1st degree discrimination is very difficult to practice. Provide 1 example where a form of 1st degree discrimination is practiced.
3. Complete and label the diagram showing the numbers of seats sold and price for leisure and business passengers. Answer the following questions:
a. If the price of fuel increases modestly, will fares increase?
b. Are all seats sold? If not, wouldn't the airline make more money by selling more seats at a lower price?
4. Explain the conditions necessary for a firm to practice 3rd degree price discrimination and using airline conditions as examples.
5. Wall-Mart offers to match the price of any competitor. Why is guarantee not necessarily a benefit to consumers?