Question 3 A local tailor has two types of customers, private customers and department stores. The market of private customers has a demand given by Qp = 2000 - 100P, and the market of department stores has a demand given by Qs = 4000 - 100P. The marginal cost of one more alteration is constant and equal to zero. (a) Suppose that the tailor can charge different prices to each type of customer. What are the optimal prices? What is the total profit? (b) What is the value of each demand's elasticity at the optimal price level? (c) What is the total consumer surplus (for both groups)? (d) Suppose that a regulation prohibits price discrimination. What is the optimal (uniform) price when the markets are combined? How much does the regulation cost the tailor in terms of forgone profits? What happens to consumer surplus?

Question 3 A local tailor has two types of customers, private customers and department stores. The market of private customers has a demand given by Qp = 2000 - 100P, and the market of department stores has a demand given by Qs = 4000 - 100P. The marginal cost of one more alteration is constant and equal to zero. (a) Suppose that the tailor can charge different prices to each type of customer. What are the optimal prices? What is the total profit? (b) What is the value of each demand's elasticity at the optimal price level? (c) What is the total consumer surplus (for both groups)? (d) Suppose that a regulation prohibits price discrimination. What is the optimal (uniform) price when the markets are combined? How much does the regulation cost the tailor in terms of forgone profits? What happens to consumer surplus?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter13: Positive Externalities And Public Goods

Section: Chapter Questions

Problem 23P: HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow...

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