1. The following shows the demands andmarginal revenue in two markets (D1 and MR1, and D2 and MR2) for a price discriminating firm along with total demand, DT, marginal revenue, MRT, and marginal cost MC.

As with the PPT slides, you can view the data generating these lines; for reference,

D1 = 310 - 0.2Q

D2 = 450 - 0.2Q

MRT = 380 - 0.2Q

DT = 380 - 0.1Q

MC = 0.0005Q^2 - 0.55Q + 290

a. Compare the demand conditions in each market; i.e. how do the two markets differ in their demand for the firm's product?

b. How much total output should the firm produce (for both markets combined)? How should that output be allocated between markets 1 and 2?

c. What price should the firm charge in each market?

2. A book that sounds just perfect for me, Kate Raworth's Doughnut Economics is available on Amazon for $50 for the hardback and $14.67 for paperback. From the publisher's perspective, the difference in the cost between each version of the book seems negligible; it may cost a little bit more to produce the hard cover, but certainly not more than three times as much. Hardback versions usually also get published a few months before paperback versions are published. How do you explain the different prices for essentially the same product, given that the cost to the publisher of providing each type of book is basically the same?

Amazon also offers the Kindle digital e-book version for $13. The cost to Amazon to produce a new "copy" for the next consumer is virtually nothing; just the sending of some data to the customer's device. Why is Amazon able to charge $13 when its cost is basically zero and the market for books is likely very competitive?

3. Shaughnessy Consulting, LLC currently enjoys a patent on software that estimates economic damages for clients involved in personal injury lawsuits. Demand for my software is

Q_D = 520 - 40P. Creating the software cost me about $1,475 in development and coding. I can produce a copy of the software for $6.50 per unit (constant cost).

a. How many copies of the software should I attempt to sell? At what price should I sell it? How much profit would I make?

b. My patent expires in a year, and I know other economic consultants will produce competing software. What quantity and price will result once competing software emerges? How much consumer surplus will my clients (lawyers) gain once the competitors enter? (For measuring consumer surplus, recall that area of a triangle = * base * height.)

c. How much deadweight loss is created by my patent and monopoly in this software?

4. After considering the situation of market power for my software and how it changed after the introduction of competitors, consider situations of natural disasters and how governments respond to shortages resulting from them.

a. Read this article and comment on why anti-gouging laws can increase social welfare (i.e,. make society better off).

b. In contrast, read this blog post and comment on why price gouging may increase social welfare.

c. Which argument do you find more persuasive, and why? I.e., should governments continue to use anti-gouging laws to correct supposed market failures occurring after natural disasters?