Using a spreadsheet like the following, entering formulas for the total revenue and consumer’s surplus, and given the following demand curve of a consumer for a monopolist’s product Q = 14 – 2P ( a) find the total revenue of the monopolist when it sells 6 units of the commodity without practicing any form of price discrimination. What is the value of the consumers’ surplus? ( b) What would be the total revenue of the monopolist if it practiced first-degree price discrimination? How much would the consumers’ surplus be in this case? ( c) What if the monopolist charged P = $ 5.50 for the first 3 units of the commodity and P = $ 4 for the next 3 units— what type of price discrimination is this?
NOTE: See the original assignment question for a graph of this demand curve.
Froeb et al 41-1
Why might Mattel set a much lower contribution margin on its Barbie dolls than on the accessories for the dolls?
Froeb et al 14-4
A manufacturer of microwaves has discovered that male shoppers have little value for micro-waves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men and attribute greater value to the auto- defrost feature. There is little additional cost to incorporating an auto-defrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $ 70 and one with auto- defrost at $ 80 while women value a simple microwave at $ 80 and one with auto-defrost at $ 150.
If there is an equal number of men and women, what pricing strategy will yield the greatest revenue? What if women compromise the bulk of microwave shoppers?
Salvatore Discussion Question 8 and 10
7 What is the basic difference between using a subsidy to induce producers to install antipollution equipment and a tax on producers who pollute?
10 Given the difficulties that the regulation of public utilities faces, would it not be better to nationalize public utilities, as some European countries have done? Explain your answer.
Salvatore Problem 12
Determine whether the Justice Department would challenge a merger between two firms in an industry with 10 equal- sized firms, based on its 1984 Herfindahl- index guidelines only.
NOTE: Need to calculate Herfindahl index
Salvatore Problem 13
(Library research) Explain (a) in what way the U. S. trucking industry exemplified the capture theory hypothesis of government regulation prior to the passage of the Motor Carrier Act of 1980 and (b) the result of the passage of the Motor Carrier Act in 1980.
NOTE: Use the internet search or other sources to answer this problem
Salvatore Problem 15
Integrating Problem From the following figure referring to a natural monopolist, indicate (a) the best level of output, price, and profits per unit and in total for the monopolist, (b) the best level of output and price with a lump sum tax that would eliminate all the monopolist’s profits, (c) the best level of output, price, and profits per unit and in total with a $ 3 per unit tax collected from the monopolist, and (d) the best level of output and profit per unit and in total if the government sets the price of the product or service at $10. (e) Which is the best method of controlling monopoly power? Why? (See Figure 13- 5.)
NOTE: : (b) A lump sum tax is a fixed cost, (c) a $3 per unit tax is a variable cost which will cause AC and MC to increase by $3
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