This chapter explains that a firm that engages in second-degree price discrimination charges the same consumer different prices for different units of a good. You are a monopolist with many identical customers
Each will buy either zero, one, or two units of the good you produce. A consumer is willing to pay $50 for the first unit of this good and $20 for the second. You produce this good at a constant average and marginal cost of $5 . For simplicity, assume that if a consumer is indifferent between buying and not buying that he will buy. a. If you could not engage in second-degree price discrimination, what price would you charge? How much profit per customer would you earn? b. Suppose you offer your customers what seems to be a very generous deal: "Buy one at the regular price of $50, and get 60 percent off on a second." How many units of this good will each customer buy? How much profit per customer will you earn?
a. This part of the question is similar to part (a) of Problem 9 above. The only sensible prices to consider are $50 and $20 . You will earn a profit per customer of $50 - $5 = $45 if charge $50, you will earn a profit per customer of $40 - $10 = $30 if you charge $20, and therefore you should charge a price of $50
b. A consumer will buy two units when you offer "Buy one at the regular price of $50, 60 percent off on a second." 60% off means the price of the second unit will be $50 – (60% x $50) = $20, which equals your customer's willingness to pay for a second unit. Your total revenue per customer will be $50 + $20 = $70, your total cost per customer will be $10, and your profit per customer will be $70 - $10 = $60
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The growth rate of real GDP equals
A) [(real GDP in previous year - real GDP in current year) ÷ real GDP in previous year] × 100. B) [(real GDP in current year - real GDP in previous year) ÷ real GDP in previous year] × 100. C) [(employment in the current year - employment in previous year)/employment in previous year] × 100. D) (real GDP in current year - real GDP in previous year) × 100. E) [(real GDP in current year - real GDP in previous year) ÷ real GDP in current year] × 100.
If a monopolist practices perfect price discrimination
A) consumers surplus will be equal to the deadweight loss. B) consumer surplus will be zero. C) the firm will break even in the long run. D) producer surplus will equal consumer surplus.