Discussion:
1. Suppose a firm faces the following demand for their product: P=100-Q. Further assume that the marginal cost to produce the product is $10 and that the fixed costs are $15. The firm is thinking of implementing the following pricing technique: sell as much as it can at a price of $40 then decrease the price to $25 and sell as much as it can.
A. How many units in total is it going to sell under this scheme?
B. How much profit is the firm going to make under this scheme?
2. Suppose a firm sells its products to identical customers and each of them has the following demand for its product: P=40-Q. Further assume that the marginal cost to produce the product is $5. The fim is thinking of implementing the two part pricing technique: charge consumers an "entrance" fee and then charge $5 per each unit the consumers consume.
Under this scenario,
A. What would be the entrance fee for each consumer?
B. What would be the producer surplus per each customer?
3. Suppose there are two firms A and B in the market and the market demeaned is P=50-Q where P is the price per unit and Q is the total quantity produced by the two firms (sum of QA and QB). The marginal cost of producing the product is $!0 for both firms and fixed costs are zero.
A. Determine how much should firm A produce at the Cournot equilibrium
B. Determine what would be the price if both firms would produce at the Cournot equilibrium