1) Answer to the following question:
i) Explain the concept of the third degree price discrimination. Who gains and who loses and how?
ii) Assume products A and B are produced jointly in fixed proportion and have following demand and marginal cost curves:
Where MC represent the marginal cost of the joint products. Determine the price for product A and B and explain.
2) Assume that the product X and Y are produced by two different companies but they are identical. There are only those two companies in the market. The demand curves and MC are:
The two companies have merged together.
i) Find out the price, quantity, profit, consumer surplus and producer surplus after the companies have merged.
ii) Do you have any idea about what the quantity produced and profit made by the two companies? No need for calculation is required here. You have to analyze verbally.
3) Assume that a market is in equilibrium. Show with help of demand and supply curve that the market is in equilibrium.
a) Do a comparative static analysis in the short run if the demand of the good is increased due to increase of income.
b) Do a comparative static analysis in the long run if the demand of the good is increased due to increase of income.
c) Show what happens with consumer surplus and producer surplus in short run and in the long run.