Price Discrimination. Complete Information Case Consider the following economy. There are two consumers, 1 and 2, who de

[answerhappygod]

Price Discrimination Complete Information Case Consider The Following Economy There Are Two Consumers 1 And 2 Who De 1 (549.45 KiB) Viewed 53 times

Price Discrimination. Complete Information Case Consider the following economy. There are two consumers, 1 and 2, who derive utility from a certain good, x, and disutility from paying money, T. The consumers' utility functions are = u1(x1,Ti) = 40/x – Ti, u2(x2, T2) = 60V+ – Ty. A monopolist produces the good at constant average and marginal costs c = 5. Suppose that the monopolist observes the consumers' utility and makes take-it-or-leave-it offers (Ti, zi), i = 1,2 (T; denotes the total payment that consumer i has to make to receive x; units of the good). Compute the optimal offers (i.e. that offers that maximize the monopolist's profits) and monopolists' profit. Price Discrimination. Incomplete Information Case Consider the economy described in the exercise above. Suppose however that the monopolist does not observe the consumers'utility. Compute the optimal offers (T;, Xi), i = 1,2 and monopolists profit. How does your answer differ from the answer to Question 2? Two-part Tariff Assume that the monopolist exploits the following pricing scheme. In order to consume product customers should pay entry fee T. Upon paying T customers can purchase any quantity of the product at price p (per unit). Everything else (consumers utility and marginal costs) are the same as in question 2. (a) Write-down a maximization problem paying special attention to both Individual Rationality and Incentives Compatibility constraints. (b) Solve for optimal T and p. Calculate quantity consumed by each type of a consumer and the monopolist's profit. (c) Compare profits from questions 2, 3 and this one. Provide intuition explaining which one is the highest and which is one the lowest.