ECON 310 – Fall 2006. Chapter 12 – “Capturing Surplus.” “Review Questions” (pages 476-477): 1, 2, 3, 4, 5, 6, and 8. “Problems” (pages 477-479): 12.2, 12.3, 12.4, 12.5, 12.10, 12.11, 12.12, and 12.13. Additional Questions: 1) Consider a market in which there are three types of consumers, “Type H,” “Type M,” and “Type L.” Each individual wishes to purchase at most one unit of the good. The three different types of buyers have reservation prices of 55=Hr , 25=Mr, and 15=Lr respectively. This product is produced by a monopolist with costs of 4005)( += qqC . There are a total of 15 potential consumers in this market. Initially suppose that there are 5=HN consumers of “Type H,” 5=MN consumers of “Type M,” and 5=LN consumers of “Type L.” a. If this monopolist is not able to price discriminate, how many units of output will she sell and at what price? Clearly explain. Is this monopolist able to earn a positive profit? Clearly explain. Is the resulting outcome efficient? If not, determine the magnitude of Deadweight-Loss. b. If this monopolist is able to perfectly price discriminate, how many units of output will she sell and at what prices? Clearly explain. Is this monopolist able to earn a positive profit? Clearly explain. Is the resulting outcome efficient? If not, determine the magnitude of Deadweight-Loss. c. Redo parts (a) and (b), supposing instead that there are 3=HN consumers of “Type H,” 6=MN consumers of “Type M,” and 6=LN consumers of “Type L.” d. Redo parts (a) and (b), supposing instead that there are 1=HN consumers of “Type H,” 6=MN consumers of “Type M,” and 8=LN consumers of “Type L.” e. Will a monopolist that is not able to price discriminate ever choose to produce the socially efficient level of output in this market? Clearly explain.2) Consider a monopolist with zero marginal costs of production (so that costs are given by simply FqC =)( ), facing the linear demand illustrated below. a. Supposing this monopolist must charge a single price to all consumers, how many units of output should be sold and at what price? Clearly explain. Illustrate this outcome graphically. Determine the resulting values of Consumers’ Surplus, Deadweight-Loss, Producer’s Surplus, and Profit. For what values of F is the monopolist able to earn a positive profit? Clearly explain. b. Supposing this monopolist is able to engage in perfect price discrimination, how many units of output should be sold and at what prices? Clearly explain. Illustrate this outcome graphically. Determine the resulting values of Consumers’ Surplus, Deadweight-Loss, Producer’s Surplus, and Profit. For what values of F is the monopolist able to earn a positive profit? Clearly explain. p q)(qPD 10 000,8
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