MBAA 523 Problem Set 6
Question # 00143866
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Updated on: 12/01/2015 03:03 PM Due on: 12/31/2015
MBAA 523
Problem Set 6
1. You compete with many firms offering similar products (monopolistic competition). An
economic consulting firm has estimated the own-price elasticity for your most profitable
product is -1.50. Your marginal cost is constant at $75 across most of your production
volume capability. What price will maximize profits? Show the computation.
2. Define the 3 types of price discrimination and explain why 1st degree discrimination is
very difficult to practice. Provide 1 example where a form of 1st degree discrimination is
practiced.
3. Complete and label the diagram showing the numbers of seats sold and price for leisure
and business passengers. Answer the following questions:
a. If the price of fuel increases modestly, will fares increase?
b. Are all seats sold? If not, wouldn’t the airline make more money by selling more
seats at a lower price?
P
P
Db
DL
MC
4. Explain the conditions necessary for a firm to practice 3rd degree price discrimination and
using airline conditions as examples.
5. Wall-Mart offers to match the price of any competitor. Why is this guarantee not
necessarily a benefit to consumers?
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Problem Set 6
1. You compete with many firms offering similar products (monopolistic competition). An
economic consulting firm has estimated the own-price elasticity for your most profitable
product is -1.50. Your marginal cost is constant at $75 across most of your production
volume capability. What price will maximize profits? Show the computation.
2. Define the 3 types of price discrimination and explain why 1st degree discrimination is
very difficult to practice. Provide 1 example where a form of 1st degree discrimination is
practiced.
3. Complete and label the diagram showing the numbers of seats sold and price for leisure
and business passengers. Answer the following questions:
a. If the price of fuel increases modestly, will fares increase?
b. Are all seats sold? If not, wouldn’t the airline make more money by selling more
seats at a lower price?
P
P
Db
DL
MC
4. Explain the conditions necessary for a firm to practice 3rd degree price discrimination and
using airline conditions as examples.
5. Wall-Mart offers to match the price of any competitor. Why is this guarantee not
necessarily a benefit to consumers?
Page 1 of 1
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Rating:
/5
Solution: MBAA 523 Problem Set 6