1. Price Discrimination with Downward Sloping Demand. A firm chooses how much of a good to sell to consumers with downward sloping demand. Consumers have utility u(q) = 12qaq², where q is quantity. The firm has no costs.¹ First, suppose there is mass one of consumers with a = 1. a) Linear pricing. The firm charges a single price p per unit to maximize its profits. What price does it choose? How much do consumers buy? How much profit does the firm make? b) Nonlinear pricing. Suppose the firm can charge a different price p(q) for each unit q. What price function does it choose? How much do consumers buy? How much profit does the firm make? c) Bundled pricing. Suppose the firm can sell a bundle (q, p). What price and quantity does it choose? How much profit does the firm make?

1. Price Discrimination with Downward Sloping Demand. A firm chooses how much of a good to sell to consumers with downward sloping demand. Consumers have utility u(q) = 12qaq², where q is quantity. The firm has no costs.¹ First, suppose there is mass one of consumers with a = 1. a) Linear pricing. The firm charges a single price p per unit to maximize its profits. What price does it choose? How much do consumers buy? How much profit does the firm make? b) Nonlinear pricing. Suppose the firm can charge a different price p(q) for each unit q. What price function does it choose? How much do consumers buy? How much profit does the firm make? c) Bundled pricing. Suppose the firm can sell a bundle (q, p). What price and quantity does it choose? How much profit does the firm make?

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter8: Monopoly

Section: Chapter Questions

Problem 3SQP

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