Assignment:
1. What are the key conditions that must be present for a firm to successfully price discriminate? What are two different examples of price discrimination being practiced today?
2. What is a two-part tariff? Why do firms sometimes use them? What is an example of a firm that uses a two-part tariff as part of its pricing strategy?
3. George has a monopoly on burrito sales in a small town in Kansas. The burritos cost him a constant $5 each to produce. He faces following demand schedule for his product: (please look at image)
- Under normal monopoly conditions, how many burritos should he produce, what price should he charge, and how much profit can he expect to make?
- Draw a graph under these assumptions showing (and calculating) producer surplus, consumer surplus, economic surplus and deadweight loss.
- If George was able to engage in perfect price discrimination, how many burritos would he produce, what would his total revenue be, and how much profit would he earn?
- Draw a graph under these assumptions showing (and calculating) producer surplus, consumer surplus, economic surplus and deadweight loss.
Is society better off by allowing George to perfectly price discriminate? Defend your answer.
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Price
|
Quantity Demanded
|
|
$30
|
0
|
|
$25
|
1
|
|
$20
|
2
|
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$15
|
3
|
|
$10
|
4
|
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$5
|
5
|
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$0
|
6
|