Question

Please answer the multiple choice questions.

Refer to the figure below. When the firm charges the reservation price to each consumer, the additional profit equals area s/o MC D AR MR Quany Select one: a.A+D b. B+A c. C+ B C. C d. B+C+ D Refer to the figure below. The price-discriminating firm earns a higher profit by s/0 AC-MC MR D-AR MAK Quantity Select one: a.charging a lower price as time goes by. b. charging a lower price to the consumers who acquire the good first oc.charging a higher price as time goes by. O d. charging an average of a high price and a low price over time. In the figure below, the points represent the reservation prices of four different consumers. With mixed bundling, $120 100 60F 10 20 0S) 100 130 Select one: a. consumers A and D pay $90 for a single good, and consumers B and C pay $120 for a bundle. b. consumers A and D pay $90 for a bundle, and consumers B and C pay $120 for a single good. c.consumers A and D pay $90 for a bundle, and consumers B and C pay $120 for a bundle. d.consumers A and D pay $90 for a single good, and consumers B and C pay $120 for a single good.

Answer 1

Solution:

1. (a)- B+C+D - When the firm charges price P* (where MR=MC) the profit of the firm is between the area of MR and MC curve because MR calculates the additional revenue from selling an extra unit and MC calculate the additional cost of selling an extra unit. So the profit of the firm is MR - MC. But when the firm started selling goods at the reservation price, it set the price where demand(AR) equals to MC, then the profit of the firm is between the area of AR and MC curve. So the additional profit is equal to B+C+D.

2. (a) A price discriminating firm charges the lower price as time goes because in the first period all the consumers with a high valuation of good consume and the consumers with lower valuation left. So in the next period, the residual consumers will buy only if the price of good fall over time.

3. (a) Consumer A and D pay $90 for single good and B and C pay $120 for the bundle. This is because $90 is the price of single good while $120 is the price of the bundle in which both the good is included. The price of the bundle is the same throughout the line which is at the extreme right.