Continuation from http://www.cramster.com/answers-nov-11/economics/profit-max-pr

Question

Continuation from http://www.cramster.com/answers-nov-11/economics/profit-max-price-quantity-amp-friend-invests-patents-portable-ice-cream-carrier_1737197.aspx?rec=0

c. what profits will you make? how valuable is your price discrimination idea?

d. what is the effect of price disciminaton on social welfare? are consumers made better or worse off?

e. suppose the demand functions were reversed. would you be able to price discriminate? why or why not

f. Suppose your cost function changes to TC = Q^2 and demand stays the same. What price would you charge each group now?

Explanation / Answer

C. We will make our total profit from both groups 96+68=164 D. In this case, consumers are made better off. There is more quantity supplied. Instead of 2 total now there is 2 to each group.The effect of price discrimintion on social welfaare has reduced the gap. In adition, total profit for the firm is much more. E. If the demand functions were reversed we could still discriminate. We would just have the Q and P for Qhome and Qrest switched. This would result in the exact same result. F. now we will have a marginal cost of 2Q, or Q=P/2 Qrest 70-2P=P/2 68=5P/2 P=27.2 Q=70-2(27.2)=15.6 For our profit 27.2*15.6=424.32 This would result in More Q and less P. In addition, profit went up Qhome 50-P=P/2 3P/2=50 P=33.33 Q=50-33.33=16.66 Profit= 33.33*16.66=555.28 In this case, Q rose and P decreases. This again resulted in more profit to the firm. Hope this helps

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