7. Suppose you are employed at a monopolistic company as a research (pricing) economist and you are deriving the behavior of two markets based on demand curves given by: D1(p1) = 50 − p1 D2(p2) = 50 − 2p2 Assume that the marginal cost is constant at $8 a unit. (a) If it can price discriminate, what price should it charge in each market in order to maximize profits? (b) If it can’t price discriminate, what price should it charge?
7. Suppose you are employed at a monopolistic company as a research (pricing) economist and you are deriving the behavior of two markets based on demand curves given by:
D1(p1) = 50 − p1
D2(p2) = 50 − 2p2
Assume that the marginal cost is constant at $8 a unit.
(a) If it can
(b) If it can’t price discriminate, what price should it charge?
8. Pele enjoys coffee (C) and tea (T) according to the function
Replace 'Pele' with Alana
U(C, T) = 3C + 4T
(a) What does her utility function say about her MRS of coffee and tea?
(b) Suppose the price of coffee (PC) and the price of tea (PT) are both $3. If Alana has $12 to spend on these products,
i. How much coffee and tea should she buy to maximize her utility?
ii. Draw a carefully labeled graph of her indifference curve map and her budget constraint. Put the quantities of coffee on the horizontal axis. Be sure to identify the utility maximizing point.
(c) Would Alana buy more coffee if she had more income? Explain.
(d) Suppose the price of coffee fell to $2. How would her consumption change?
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