5. CostCo is a retail outlet that requires members to pay an annual fee to access its stores. However, once this fee has been paid, customers can buy any number of goods at a relatively lower price per unit. This is an example of... (a) Perfect price discrimination (b) Segmentation (c) Bundling (d) Two-part pricing (e) Quantity discounts (f) Versioning
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- A6 3) Pricinga) Provide a real-world example of third-degree price discrimination (with a hyperlink to the example). Discuss what prevents re-sale in your example (i.e. why can’t people who pay a lower price sell the good to people who face a higher price?). b) Provide a real-world example of a seller offering a “decoy option” (with a hyperlink to the example). Discuss how you expect the demand for the other options to change if this decoy option was removed from the market by the seller.The LED Toy Company has a hot new toy called Dabbdo that it sells in two markets. On the cost side the firm has fixed costs of $150,000 dollars monthly. In addition, its variable costs are MC = AVC = $25 per toy. Assume that the LED Toy Company can engage in third-degree price discrimination and its goal is to maximize its profits. The monthly demand in Market 1 where P1 is price in dollars is: P1 = 55 - Q1, where Q1 is the quantity in thousands of the toy sold in market 1 monthly. The monthly demand in Market 2 where P2 is price in dollars is: P2 = 35 - 0.5Q2 where Q2 is the quantity in thousands of the toy sold in market 2 monthly (a) How many toys will be bought and sold in each market monthly? ANSWERS: In Market 1: ___________ thousand ; Market 2: ___________ thousand (b) What price will be charged in each market? ANSWERS: Price in market 1: ________ ; Price in market 2: _________ (c) And what LED's monthly profits be?The LED Toy Company has a hot new toy called Dabbdo that it sells in two markets. On the cost side the firm has fixed costs of $150,000 dollars monthly. In addition, its variable costs are MC = AVC = $25 per toy. Assume that the LED Toy Company can engage in third-degree price discrimination and its goal is to maximize its profits. The monthly demand in Market 1 where P1 is price in dollars is: P1 = 55 - Q1, where Q1 is the quantity in thousands of the toy sold in market 1 monthly. The monthly demand in Market 2 where P2 is price in dollars is: P2 = 35 - 0.5Q2 where Q2 is the quantity in thousands of the toy sold in market 2 monthly And what LED's monthly profits be? ANSWER: ______________________
- The LED Toy Company has a hot new toy called Dabbdo that it sells in two markets. On the cost side the firm has fixed costs of $150,000 dollars monthly. In addition, its variable costs are MC = AVC = $25 per toy. Assume that the LED Toy Company can engage in third-degree price discrimination and its goal is to maximize its profits. The monthly demand in Market 1 where P1 is price in dollars is: P1 = 55 - Q1, where Q1 is the quantity in thousands of the toy sold in market 1 monthly. The monthly demand in Market 2 where P2 is price in dollars is: P2 = 35 - 0.5Q2 where Q2 is the quantity in thousands of the toy sold in market 2 monthly What price will be charged in each market? ANSWERS: Price in market 1: ________ ; Price in market 2: _________1) What kind of consumer behavior is second-degree price discrimination based on? Need relevant examples. 2) Explain the role of price elasticity of demand in applying third-degree price discrimination.Use appropriate graphs to support the case.itle A reliable 15-year-old babysitter can be a price maker within her own neighborhood. Suppose that th Description A reliable 15-year-old babysitter can be a price maker within her own neighborhood. Suppose that this babysitter wishes to implement a Multipart Pricing Plan. Customers who use her services less than L hours per month will pay a high price of PH dollars per hour. Customers who use her services more than L hours per month will still pay PH dollars for the first L hours, but for any additional hours they can then pay the lower price PL dollars per hour which she will generously set equal to her marginal cost. Assume that market demand is QD = 60 – 10P and her total costs are C = 3Q; so PL = $3 per hour. If she set her high price at $4 per hour, would her customers accept a limit of L = 24 hours per month in order to use the remainder of her services at a price of $3 an hour? Provide a labelled diagram and briefly explain. Suppose that this talented babysitter was…
- Your manager is only concerned with selling her product for the highest price possible under profit- maximizing conditions. In which of the two markets should she operate? • Market 1: - Demand:Q=100-2P - MarginalCost:MC=15 • Market 2: - Own-PriceElasticity:εQ,P=-2.5Note:Thisimpliestheown-priceelasticityis constant at all points. - MarginalCost:MC=15 a. She should operate in Market 1, as it has the highest profit-maximizing price. b. She should operate in Market 2, as it has the highest profit-maximizing price. c. She is indifferent, as each market has an equal profit-maximizing price.1. TopGames buys the rights to sell a certain video game title worldwide. top games pay $400,000 for this right and the marginal cost of providing the video game download is zero. TopGames’ economist realizes they have two groups of customers: the 2,000 hard-core fans of this game who will pay up to $150 a year to be able to play this game; and the 10,000 casual gamers who will pay up to $50 a year to play this game. If TopGames can NOT price discriminate, what is its profit-maximizing price? What is its profit? a. Price = $50; Profit = negative $100,000 b. Price = $50; Profit = $300,000 c. Price = $150; Profit = $100,000 d. Price = $150; Profit = $500,0002. TopGames buys the rights to sell a certain video game title worldwide. top games pay $400,000 for this right and the marginal cost of providing the video game download is zero. TopGames’ economist realizes they have two groups of customers: the 2,000 hard-core fans of this game who will pay up to $150 a year to be able to play this…10) Many restaurants offer "early-bird specials" to dinner customers. These specials consist of a significant price reduction on selected menu items purchased before some pre-determined time, e.g., 6 p.m. Is such a practice a form of price discrimination? If so, what type?
- Exercise 4.3 Show why optimal third-degree price discrimination requires that the marginal income for each group of consumers be equal to the marginal cost. Use this condition to explain how a firm must alter its prices and total output if the demand curve of one of the consumer groups shifts outward, so that the marginal income corresponding to that group increases. (TdeR. 5, cap. 11 de PR9)1. A company can sell its product in two separate market defined by the following inverse demand functions, P1=10-Q1 , P2=20-1.5Q2 the cost associated with production is given by ?? = 4 + 2Q a) What prices and quantities should the firm charge and produce in each market. b) What profit will the firm make if it practice price discrimination c) If the firm is charging uniform price in all market what price will it charge and what output will maximize profit d) What is the maximum profit for charging same price? e) Calculate the elasticity of demand in each market and comment on your resultSuppose an airline sells air tickets to two types of customer – business travelersand vacation travelers. Their estimated demand elasticities are -2.5 and -4.0respectively.Suppose the marginal cost is constant at $240, and the services provided to thetwo types of customer are similar.a. Based on the given information, explain with TWO practical reasons whether theairline should charge a higher price on business travelers or vocational travelers.Explain without calculation.
