- Answer Part 2 The Highlighted Question 1 (107.61 KiB) Viewed 48 times
Answer part 2 (the highlighted question)
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Answer part 2 (the highlighted question)
Answer part 2 (the highlighted question)
1. Consider an economy with a monopolistic electricity supplier. Assume that the costs of pro- ducing a unit of electricity are 1$. There are only two goods in this economy namely money, y, and electricity, x. All consumers in this economy are endowed with 100$ in money and no electricity. There are two types of buyers in the economy: type H has high value for electricity, while type L does not. In particular assume that preferences satisfy: 8x1/2 + y = u(x, y|H) u(x,y|L) = (9/2)x1/2 + y (i) If the monopolist can recognize the type of any individual, find the optimal pricing sched- ules for both types. Why is this outcome efficient? (i) Suppose that 1/8 of all individuals in the population are of type H. If the monopolist cannot recognize the type of any individual, find the separating equilibrium optimal pricing schedules for both types. Why is the outcome inefficient?
1. Consider an economy with a monopolistic electricity supplier. Assume that the costs of pro- ducing a unit of electricity are 1$. There are only two goods in this economy namely money, y, and electricity, x. All consumers in this economy are endowed with 100$ in money and no electricity. There are two types of buyers in the economy: type H has high value for electricity, while type L does not. In particular assume that preferences satisfy: 8x1/2 + y = u(x, y|H) u(x,y|L) = (9/2)x1/2 + y (i) If the monopolist can recognize the type of any individual, find the optimal pricing sched- ules for both types. Why is this outcome efficient? (i) Suppose that 1/8 of all individuals in the population are of type H. If the monopolist cannot recognize the type of any individual, find the separating equilibrium optimal pricing schedules for both types. Why is the outcome inefficient?
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