Eco 201 Name_______________________________ Problem Set 13 7 December 2011 Cowen & Tabarrok, chapter 12 1. Serena is a single-price, profit-maximizing monopolist in the sale of her own patented perfume, whose demand and marginal cost curves are as shown. Relative to the consumer surplus that would result at the socially optimal quantity and price, how much consumer surplus is lost from her selling at the monopolist's profit-maximizing quantity and price? 2. True or False: A business that price discriminates will generally charge some customers more than marginal cost, and it will generally charge other customers less than marginal cost. 3. If Congress passed a privacy law making it illegal for colleges to ask for parents’ tax returns, would that tend to help students from high-income families or students from low-income families?4. Refer to the figure below that shows the market demand curves in two markets that are served by a firm. Using the principles of price discrimination, explain and calculate how much profit the firm could make.5. A dry cleaner has a sign in its window: “Free internet coupons.” The dry cleaner lists its website, and indeed there are good discounts available with the coupons. Most customers don’t use the coupons. a. What probably would be the main difference between customers who use the coupons and those who don’t? b. Some people might think “The dry cleaner offers the coupons to get people in the door to try the place out, but then the customers will pay the normal high price afterward.” But the coupons are always there, so even repeat customers can keep using the coupons. Is this a mistake on the business owner’s part? Hint: Think about marginal cost. 6. Where are you more likely to see businesses “bundling” many goods into one package: In industries with high fixed costs and low marginal costs (like computer games or moviemaking), or in industries with low fixed costs and high marginal costs (like doctor visits, where the doctor’s time is
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