Discussion Question 7,.pdf

DiscussionQuestion8,(a)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chargedifferentpricesindifferentmarkets(i.e.,practicethird degreeprice

discrimination)evenifpossible?

a) Thefirstandislesscommonthanthirddegreepricediscriminationbecauseit

requiressellerstolower.Seconddegreepricediscriminationislesscommon

becausethesellerchargesdifferentpricestothebuyerbecausetheybuy

differentquantities.Thirdpricediscriminationislesscommonbecauseit

CTQs#6

SalvatoreChapter12.

DiscussionQuestion:7,Quantitydiscountsarenotaformofpricediscriminationbecause

thefirmsavesonhandlinglargeorders.Trueorfalse?Explain.

TRUE.Qualitydiscountsarenotaformofpricediscriminationsbecausethefirm

savesonhandlinglargerorders.Therearecostsavingsassociatedtothevolumeofsales

andhandlinglargeorders.

TC

70

90

Profit

50

70

stabilitymightrise.Whilethedisadvantagesofcostpluspricingarethatitignoresthe

priceelasticityofdemand,thebusinessmightnotseekfurtherwaystocutcosts.Lastly,

thecostpluspricingmightnegativelybackfireonthebusiness.Thehighcostswould

causeanincreaseinpricewhichwouldthenleadtoalowerdemandoftheproduct.

c)Incrementalcostpricingisthecorrectpricingstrategybecausethepriceofunitgood

producedisbasedonvariablecost.

Problem5.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

AlowercontributionmarginonBarbiedollsisaformofindirectprice

resultthevalueofafullyaccessorizedBarbiedollishigherthanaless

Problem12.(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?

batches.Withsmallerbatches,firstdegreepricediscriminationisimplemented

Individualproblem14–4.Amanufacturerofmicrowaveshasdiscoveredthat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

incorporatinganauto defrostfeature.Sincemenand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micro waveat$80andone

withauto defrostat$150.Ifthereisanequalnumberofmenandwomen,whatpricing

SalvatoreChapter13:

DiscussionQuestion:8Whatisthebasicdifferencebetweenusingasubsidytoinduce

producerstoinstallantipollutionequipmentandataxonproducerswhopollute?

subsidywouldpromotetheinstallationofantipollutionequipmentandataxwouldbea

 penaltyfornotinstallingtheantipollutionequipment.

Problem13.(Libraryresearch)Explain(a)inwhatwaytheU.S.truckingindustry

exemplifiedthecapturetheoryhypothesisofgovernmentregulationpriortothepassage

Problem12.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.

TheJusticeDepartmentwouldchallengethemergerbetweentwofirmsinan

politicsandinvolvedinbureaucracy.Thereforetheproblemwouldonlygetworseifthe

complexityofthedifficultiesrise.

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Problem15.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monopolist’s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?(SeeFigure13 5.)

a) Profitmaxizingoutforthemonopolistis6millionunits.MR=MCwhichwould

oftheMotorCarrierActof1980and(b)theresultofthepassageoftheMotorCarrier

Actin1980.

a)Thecapturetheorysuggeststhattherearecertaininherentfeatureswhichcanbeused

tostiflecompetitioninthetruckingindustry.WhentheInterstateCommerceCommission

gaveoutacertificateforanewcompanytooperate,theexistingtruckingcompanies

couldchallengeitscertificateandchargingrates.

b)TheMotorCarrierActof1980madeeverythingbettersinceitincreasedcompetition.

d) Ifthegovernmentsetsthepriceoftheproductorserviceat$10thenthe

monopolistwouldbecometheperfectcompetitor.

e) Thebestmethodofcontrollingmonopolypowerisregulationbecauseitsetsthe

priceatthelowestlevel.Itthencausesthemonopolisttonotoverwhelmthe

consumerwithoverlyhighprices.Ifthemonopolististaxedwithoutregulation,