Reference no: EM131004674
Drexoogle has developed the first computer (the “earpod”) that fits in one’s ear and functions as a phone, can tell you the time, and will conduct Google searches all in response to a person’s voice commands. Based on market research, Drexoogle has determined that the market demand for this product is Q = 2000 – p, where Q is in thousands of earpods and p is in dollars. Drexoogle’s cost function is 1000Q (there are no fixed costs). First, suppose that Drexoogle can only set a uniform monopoly price for the earpod.
(a) What is the price and quantity that maximizes Drexoogle’s economic profits?
(b) What are the economic profits that result from monopoly pricing?
(c) What is the consumer surplus and deadweight loss that result from monopoly pricing?
Now suppose that Drexoogle can perfectly price discriminate; that is, it can identify just by looking at a customer exactly what the maximum that customer would be willing to pay for the earpod.
(d) In this case, Drexoogle will not set a uniform price, but rather will set a different price for each customer based on their willingness to pay. What is the quantity of earpods Drexoogle should sell to maximize economic profits?
(e) What are the economic profits that result from perfect price discrimination?
(f) What is the consumer surplus and deadweight loss that result from perfect price discrimination? Now suppose that Drexoogle cannot perfectly price discriminate, but can identify and separate two different groups of buyers in the market: students and business people (so total quantity Q = Qstudents + Qbusiness). Students have demand that is given by Qstudents = 1500 – 0.8p. Business people have demand that is given by Qbusiness = 500 – 0.2p.
(g) What is the price and quantity Drexoogle should set in the student market to maximize profits in that market? What is the price and quantity Drexoogle should set in the business people market to maximize profits in that market?
(h) What are the economic profits that result from demographic price discrimination?
(i) What is the consumer surplus and deadweight loss that result from demographic price discrimination?
|
In the case of perfectly inelastic demand
: In the case of perfectly inelastic demand,
|
|
Calculate marginal revenue for point on the demand curve
: Suppose that P1=10 and Q1=20; P2=20 and Q2=10. Suppose that price elasticity of demand is -1 for P=4, Q=10. Calculate marginal revenue for this point on the demand curve. Suppose price elasticity of demand is equal to -2 at a price of 4. If you incre..
|
|
Monopsonistic labor market
: This is labor economics. Here is a question. If a modest but binding minimum wage is placed on a competitive labor market, what will happen to the price of the good made by firms in this market? How does your answer change if this is monopsonistic la..
|
|
Culinary school tuition immediately after high school
: You spend $5000 on one year of culinary school tuition immediately after high school. The tuition is not refundable. After 3 months you want to go to college rather than continue culinary school. An economist would tell you that the cost of your cook..
|
|
The economic profits that result from monopoly pricing
: Drexoogle has developed the first computer (the “earpod”) that fits in one’s ear and functions as a phone, can tell you the time, and will conduct Google searches all in response to a person’s voice commands. What is the price and quantity that maxim..
|
|
Consider the market for vegan soup
: Consider the market for vegan soup, where two firms, Kibble and Flesh Not, are in Stackelberg competition. Flesh Not observes Kibble's output level before choosing its desired output level. The market inverse demand curve for vegan soup is P: 18 - Q,..
|
|
Technology transfer in the solow model
: Technology transfer in the Solow model: One explanation for China’s rapid economic growth during the past several decades is its expansion of policies that encourage “technology transfer.” Draw a graph showing what happens to output in China over tim..
|
|
Market characterized by the inverse demand curve
: There are two firms that are producing identical goods in a market characterized by the inverse demand curve P:60 -2Q, where Q is the sum of Firm l's and Firm 2's output, qft qz. Each firm's marginal cost is constant at$12, and fixed costs are zero. ..
|
|
Savings and investment in the open economy
: Now assume that the economy is open and that the world interest rate is determined on the world market instead of in the domestic economy. Use a two-country model with initial current accounts equal to zero. How does an increase in domestic wealth af..
|