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Chapter 11: Q2. (page 449)
If the demand for drive-in movies is more elastic for couples than for single individuals, it will be optimal for theaters to charge one admission fee for the driver of the car and an extra fee for passengers. True or false? Explain.
The statement is true.
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Look again at Figure 11.17 (p. 438). Suppose that the marginal costs c1 and c2 were zero. Show that in this case, pure bundling, not mixed bundling, is the most profitable pricing strategy. What price should be charged for the bundle? What will the firm鈥檚 profit be?
Many retail video stores offer two alternative plans for renting films:
鈥� A two-part tariff: Pay an annual membership fee (e.g., \(40) and then pay a small fee for the daily rental of each film (e.g., \)2 per film per day).
鈥� A straight rental fee: Pay no membership fee, but pay a higher daily rental fee (e.g., $4 per film per day).
What is the logic behind the two-part tariff in this case? Why offer the customer a choice of two plans rather than simply a two-part tariff?
Suppose that two competing firms, A and B, produce a homogeneous good. Both firms have a marginal cost of MC = \(50. Describe what would happen to output and price in each of the following situations if the firms are at (i) Cournot equilibrium, (ii) collusive equilibrium, and (iii) Bertrand equilibrium.
(a) Because Firm A must increase wages, its MC increases to \)80.
(b) The marginal cost of both firms increases.
(c) The demand curve shifts to the right.
Your firm produces two products, the demands for which are independent. Both products are produced at zero marginal cost. You face four consumers (or groups of consumers) with the following reservation prices:
CONSUMER GOOD 1(\() GOOD 2(\)) |
A 25 100 |
B 40 80 |
C 80 40 |
D 100 25 |
a. Consider three alternative pricing strategies: (i) selling the goods separately; (ii) pure bundling; (iii) mixed bundling. For each strategy, determine the optimal prices to be charged and the resulting profits. Which strategy would be best?
b. Now suppose that the production of each good entails a marginal cost of $30. How does this information change your answers to (a)? Why is the optimal strategy now different?
In Example 11.1 (page 422), we saw how producers of processed foods and related consumer goods use coupons as a means of price discrimination. Although coupons are widely used in the United States, that is not the case in other countries. In Germany, coupons are illegal.
Does prohibiting the use of coupons in Germany make German consumers better off or worse off?
Does prohibiting the use of coupons make German producers better off or worse off?
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