Use the following to answer question 23. (Figure 10.7) Suppose a firm has two ty

Question

Use the following to answer question 23. (Figure 10.7) Suppose a firm has two types of customers but cannot tell which type of buyer the customer is before a purchase is made. If the firm wanted to use a quantity-discount pricing scheme, what prices should it set? The firm could charge S12 per unit for any quantity purchased or $4 per unit if buying 4 or more units. The firm could charge $ 12 per unit for any quantity purchased or $7 per unit if buying 3 or more units, but the pricing scheme would not be incentive-compatible for Type B customers. The firm could charge S? per unit for any quantity purchased or $4 per unit if buying 2 or more units, but the pricing scheme would not be incentive-compatible for Type A customers. The firm could charge $8-50 per unit for any quantity purchased or $4 per unit if buying 3 or more units.

Explanation / Answer

Option B.

MR = MC

IN market 1 = $7 is the equlibrium price for 3 and above units but in market 2 $12 is the equilibrium price for unit 2 or more.

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