1. Which of the following statements is correct for a firm that can price-discri
ID: 1202719 • Letter: 1
Question
1. Which of the following statements is correct for a firm that can price-discriminate?
a) It should adjust prices so that customers with price-inelastic demand pay higher prices than those with elastic
demand.
b) It should adjust prices so that customers with price-inelastic demand pay lower prices than those with elastic
demand.
c) It should adjust prices so that customers with price-elastic demand pay lower prices than those with inelastic
demand.
d) It should adjust prices so that customers with price-elastic demand pay higher prices than those with inelastic
2.(Figure: Payoff Matrix I for Blue Spring and Purple Rain) The figure Payoff Matrix I for Blue Spring and Purple Rain
refers to two producers of bottled water. Each has two strategies available to it: a high price and a low price. The
dominant strategy for Purple Rain is to:
a) always charge a high price.
b) always charge a low price.
c) Purple Rain does not have a dominant strategy.
d) always adopt the same strategy as Blue Spring.
Why does purple rain not have a dominant strategy?
3. (Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs a natural monopoly firm producing electricity for a small mountain village. The table shows Lenoia's demand and total cost of producing electricity. To maximize profits, Lenoia should charge a price of:
a) $350.
b) $450.
c) $400.
d) $500
I'd like to know how to figure this out? Can I get a detailed explanation?
Purple Rain High price Purple Rain'sPurple Rain's Low price profit = profit High Blue p price Spring's lue ,000 Blue Ble $50,000 Spring's profit = $2,000 profit $20,000 CD Purple Rain's Ble $12,000 profit = Purple Rain's profit = profit Low Blue Blue $10,000 Spring's profit = $10,000 price Springs $50,000Explanation / Answer
1. If a firm can price discriminate i.e. the firm has capability to differentitate price based upon market or customer, then firm must do it to earn higher from customers who have price inelastic demand. Option (a) is correct.
2. Purple Rain does not have a Dominant price strategy, because when price of Purple Rain is high Blue Sping is also making same profit of $ 20,000/-, hence Purple Rain is not dominating the market by its pricing strategy.
3. Maximum Profit per unit is achieved with Price of $400. See below table for calculation
Quantity (A) Total Cost (B) Cost per Megawatt(C=B/A) Price (D) Profit
(E=D-C) 1 1000 1000 550 -450 2 1075 538 500 -38 3 1200 400 450 50 4 1375 344 400 56 5 1600 320 350 30 6 1875 313 300 -13 7 2200 314 250 -64 8 2575 322 200 -122
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.