Part-1:
1. Quantity discounts are not a form of price discrimination because the firm saves on handling large orders. True or False? Explain
2. Why are first and second-degree price discrimination less common than third-degree price discrimination? (b) Are lower airline fares at midweek an example of third-degree price discrimination? (c) Under what conditions would it not be useful to change different prices in different markets not be useful to change different prices in different markets (i.e., practice third-degree price discrimination) even if possible?
3. What are (a) the advantage and (b) the disadvantage of cost-plus pricing? (c) Why is incremental cost pricing the correct pricing method? Why is full-cost pricing equal to it?
4. The dairy farm company, a small producer of milk and cheese, has estimated the quantities of milk and cheese that it can produce with three levels of total expenditures or total costs. These are indicated in the following table. If the price of milk (product A) and the price of cheese (product B) that the firm receives are $1 each per unit of the products, draw a figure showing the maximum total profit ( ) that the firm can earn at each level of TC and the overall maximum profit that the firm can earn for the three different levels of TC.
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TC=$70
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TC=$90
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Product A
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Product B
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Product A
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Product B
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80
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0
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100
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0
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70
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40
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90
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60
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50
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70
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70
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90
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20
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90
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30
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120
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0
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95
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0
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130
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TC=$140
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Product A
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Product B
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130
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0
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110
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70
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80
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120
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40
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150
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0
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160
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(A) Will a monopolist's total revenue be larger with second-degree price discrimination when the batches on which it charges a uniform price are larger or smaller? Why? (b) How does a two-part tariff differ from bundling?
P12) Think about which case(smaller or larger batches) would allow a monopolist to take a larger consumer surplus. Example) in the diagram below, there seems to be only three batches drawn. You can draw as many as batches you want
With D as the demand curve faced by a monopolist, the firm could sell Q=40 at P= $2 for TR=$80 (the area of rectangle CF0G). Consumers, however, would be willing to pay ACF0=$160 for 40 units of the product. The difference of $80 (the area of triangle ACG) is the consumer's surplus. With first-degree price discrimination (i.e., by selling each unit of the product separately at the highest price possible), the firm can extract all the consumers' surplus from consumers. If, however, the firm charged the price of P=$4 per unit for the first 20 units of the product and $2 per unit on the next 20 units, the total revenue of the firm would be $120 (the sum of the areas of rectangles BJ0H and CFJK), so that the firm would extract $40 (the area of rectangle BKGH), or half of the consumers' surplus from consumers. This is second-degree price discrimination.
Part-2:
1. why Mattel might set a much lower contribution margin on its Barbie dolls than on the accessories for the dolls?
Think about how you would do pricing if you were the seller. .Note that consumers differ in their willingness to pay for the Barbie experience.
2. A manufacturer of microwaves has discovered the male shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men and attribute greater value to the auto-defrost feature. There is little additional cost to incorporation an auto-defrost feature. Since mem ad women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $70 and one with auto-defrost at $80 while women value a simple microwave at $80 and one with auto-defrost at $150. If there is an equal number of men and women, what pricing strategy will yield the greatest revenue? What if women compromise the bulk of microwave shoppers?
3. What is the basic difference between using a subsidy to induce producers to install antipollution equipment and a tax on producers who pollute?
4. Given the difficulties that the regulation of public utilities faces, would it not be better to nationalize public utilities, as some European countries have done? Explain your answer?
5. Determine whether the Justice Department would challenge a merger between two firms in an industry with 10 equal-sized firms, based on its 1984 Herfindahl-index guidelines only.
6. Explain (a) in that way the U.S. trucking industry exemplified the capture theory hypothesis of government regulation prior to the passage of the Motor Carrier Actof 1980 and (b) the result of the passage of the motor carrier act in 1980.
7. Integrating Problem from figure 13-5 referring to a natural monopolist, indicate (a) the best level of output, price, and profits per unit and in total for the monopolist, (b) the best level of output and price with a lump sum tax that would eliminate all the monopolists profits, (c) the best level of output, price, and profits per unit and in total with a $3 per unit tax collected from the monopolist, and (d) the best level of output and profit per unit and in total if the government sets the price of the product or service at $10. (e) Which is the best method of controlling monopoly power? Why?
8. This requires a though understanding for a natural monopolist, lump sum tax, per unit tax, etc. Lump sum tax does not vary by the amount of the product, while per unit tax varies by the amount of the product. Then does lump sum tax change marginal cost or average cost? What about per unit tax then? Note that you cannot get answers without playing the figure 13-5.
9. Problem Best level of output is where MC = MR. The monopolist sets P = $12 (point A on the D curve), faces AC = ? , and thus earns a profit of ? per unit and ? million in total.
10. A lump-sum tax is like a fixed cost. As such, it shifts only the monopolist's AC curve up. A lump-sum tax of $24 million would shift the AC curve up to AC. 'Then?
11. A per-unit tax of $3 is like a variable cost. As such, it shifts the monopolist's AC and MC curves up by $3. Then?
12. Best level of output = 8 million units, profit per unit = ?, total profit = ?
13. The best method of controlling monopoly power is by regulating the price to ? Without control, the monopolist is not incentivized to produce more output even though P > MC. With the control, the best level of output for society is ? units and P > AC, ensuring the company makes at least a normal return in the long run. Also how about setting at P = AC, the intersection between AC and D?
14 Use the following graph for reference. A lump sum tax is a fixed cost.
15. Use the following graph for reference. A $3 per unit tax is a variable cost which will cause AC and MC to increase by $3.
Attachment:- critical_thinking.xlsx