Economics > EXAM > ECON 444 Homework 7 Problem Set 7 Answers (All)

ECON 444 Homework 7 Problem Set 7 Answers

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ECON 444 Homework 7 Problem Set 7 Answers (Penn State University) Problem 1. TomsonBook is the monopoly publisher which produces the textbook “Corporate Economics.” TomsonBook sells in two separat... e markets, domestic market and international market. The inverse demand function in domestic market is pD =500−qD while the inverse function in international market is pI =400−qI. The firm’s total cost function is c(qD qI)=(qD qI)2. The firm is able to price discriminate between the two markets. Problem 2. A coffee shop manager realizes that demand for coffee is more elastic among students, and is trying to determine the optimal pricing schedule. Specifically, she estimates the following average demands: • Student: qS = 18 − 5p; • Non-student: qN = 10 − 2p. The two groups visit the coffee shop in equal numbers on average. Assume that the marginal cost for coffee is $2 and there is no fixed cost. Problem 3. Suppose a flower shop has a monopoly in the market for a new type of orchid, which no other flower shop is able to produce. Because this orchid is very rare, every consumer’s individual demand for these orchids is Q = 125 - 2P. There are 100 consumers. The flower shop is able to produce the orchid at a marginal cost of $25. Problem 4. A soda company is selling cans of soda to two types of consumers, but it is unable to identify which type is which. Each high-type consumer has a demand for cans of Qh = 40−P. The low type consumer has demand of Ql = 30−P. The marginal cost of a can of soda is 4. The soda company decides to adopt a menu pricing strategy, meaning it packages a specific number of sodas together and sells the entire package at some price. (Hint: This problem is very similar to one described in the lecture notes on menu pricing.) Problem 5. Kathryn Graddy’s article, “Testing for imperfect competition at the Fulton fish market” (RAND Journal of Economics, 1995) is posted on the class AN- GEL site. Read this article and answer the following questions. (FYI: Section 4 of the article, “Estimating the degree of competition”, contains advanced material for which you will not be responsible. However the other sections should be approached as course material which may be included on Midterm 2 or the Final Exam. We will discuss this article in class on November 9, so prepare any questions you may have about the paper in advance of that class.) [Show More]

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