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Figure: Price Discriminating Monopolist

Figure: Price Discriminating Monopolist

Question

Chapter 14

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Figure: Price
Discriminating Monopolist

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13

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a.
In order to maximize profit, whatprice
should
the monopolist charge in

1. Use the figure on the
previous page. Market A? In Market B? (2 pts.)

b. What is totalconsumer surplusif the monopolist maximizes prices inbothmarkets? (1 pt.)

c. What is the
profit-maximizing monopolist’sprofit? (1 pt.)

2. Juan values Word at
$100 and Excel at $40, and Maria values Word at $20 and Excel at $90. How much
more does the seller make if it bundles than if it sells the products
individually? Assume zero costs. (1 pt.)

Chapter 15

Table: Three-Country Oil
Production

Total Market Output Market Price
600 90
800 80
1,000 70
1,200 60
1,400 50
1,600 40
1,800 30

3. Refer to Table:
Three-Country Oil Production. Suppose that three countries are engaged in oil
production. For simplicity, assume zero costs so that total revenue equals
profit.

1.
If
the three countries create a cartel and agree to mimic monopoly-like behavior,
what level ofoutputwouldeach firmproduce? What iseach firm’sprofit? (2 pt.)

2.
Assume
that Country A cheats on the cartel agreement by producing 400 more barrels
than the other two countries. What is the newmarket
price
when
Country A cheats? What is thenew
profit
earned
by Country A? (2 pts.)

3.
Assume
that Country A cheats on the cartel agreement by producing 400 more barrels
than the other two countries. What is thenew
profit
earned
individually by each of the other two countries? (1 pt.)

Table: Detergent Market
Duopoly

Unilever

(profits in billions)

Restrict Output

Expand Output

Restrict Output

($18, $15)

($6, $25)

Expand Output

($20, $9)

($12, $10)

P&G

(profits in billions)

4. Refer to Table:
Detergent Market Duopoly.

1.
What
is Unilever’s best strategy and associated payoff if P&G restricts

output?
(1 pt.)

2.
Assume
the two firms would like to operate as a cartel and maximize joint profits.
Which outcome results in the highest joint payout to the two firms? What are
the associated payoffs? (2 pts.)

3.
What
is/are the Nash Equilibria of this game? Given what you know about game theory,
what kind of game is this? (2 pts.)

Figure: Price Discriminating Monopolist


 

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