Question

A sand and gravel company sells pea gravel. It faces two types of customer with the following inverse demand curves: Type A: P-3.5-0.0020 Type B: P-3-0.0010 Where Q measures bags of pea gravel and P is the price per bag. The marginal cost is $0.50. (a) Suppose the firm wants to use discounting to price-discriminate. Calculate the price per bag and the price per bag with the quantity discount. What minimum quantity will the firm set for the quantity discount? [5 Points] (b) How much consumer surplus will Type A buyers receive from the regular price and the quantity-discount price? [5 Points] (c) How much consumer surplus do Type B buyers receive from the regular price and the quantity-discount price? IS Points) (d) Based on your answers from part (b) and (c), are the prices incentive-compatible? [5 points)

Answer 1

3 C. e- i.5

NSCS 2