# Economics Chapter 11: Answers to Questions and Problems

## Economics Chapter 11: Answers to Questions and Problems

• Date Submitted: 01/14/2010 8:44 PM
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Chapter 11: Answers to Questions and Problems

1.
a. Since E = EF = EM, ￼.
b. ￼.
c. ￼.

2. x
a. P = \$60, Q = 4, and profits = 4(\$60 – \$20) = \$160.
b. Charge the maximum price on the demand curve starting at \$100 down to \$20 for each infinitesimal unit up to Q = 8 units. Profits are 8(\$100 – \$20)(.5) = \$320.
c. Charge a fixed fee of \$320 and a per-unit charge of \$20 per unit to earn total profits of \$320.
d. Create a package of 8 units and sell the package for \$480. Total profits are \$320.

3.
a. Second-degree price discrimination.
b. \$8 + 2(\$4) = \$16.
c. Total profits under perfect price discrimination are 5(\$18 – 8)(.5) = \$25, so this strategy would lead to an extra \$9.

4.
a. ￼ and ￼.
b. Here, there are two different groups with different (and identifiable) elasticities of demand. In addition, we must be able to prevent resale between the groups.

5.
a. Charge a fixed fee of \$160, plus a per-unit charge of \$20 per unit.
b. The optimal per-unit price is determined where MR = MC, or 100 - 40Q = 20. Solving yields Q = 2 units and P = \$60. The profits at this output and price are \$120 - \$40 = \$80. Thus, you earn \$80 more by two-part pricing.

6.
a. The inverse demand function is P = 200 – 4Q. Marginal cost is \$120. The optimal number of units in a package is that output where price equals marginal cost. Thus we set 200 – 4Q = 120 and solve to get the optimal number of units in a package, Q = 20 units.
b. The total value to a consumer of the 20 units, which is \$3,200 (computed as (.5)(20)(\$200 - \$120) + (\$120)(20) = \$3,200).

7.
a. \$225,000 (since all consumers purchase each product, you earn \$75,000 on sales of good X and \$150,000 on sales of good Y).
b. \$200,000 (since only the highest valuation type purchases each product, you earn \$60,000 on sales of good X and \$140,000 on sales of good Y).
c. Since all consumers receive at least \$110 in value from the bundle, all types buy the bundle. Profits are thus \$330,000....