9. Let's assume that there are two potential customers for cable service in my town of Ulysses (this in an exaggeration, but it is a small town) - let's call them customer and 2. Customer A values the first cable box at $10, and the second at $60. Customer values the first cable box at 560 and the second at $281. The cost to the cable firm of providing cable boxes is reto. 1. With perfect price discrimination, what will be the firm profit? (5) b. Now let's assume the cable company does not know exactly which customer has the different values for cable, but that it does know what the distribution of values ate. The cable company wants the customers to reveal their values through different pricing plans. The cable company can potentially offer two different packages. The first package would be for a price single cable box. The second plan would be a single price for two cable boxes. NOTE: If it is profit maximizing, to only offer one of the two plans then that is what it will do. What plans should the company offer, and how shodla it price the plans, given that the customers will select the plan that maximizes their consumer surplus? To car partial credit, you can demonstrate the various plans that you try (5) 10. The Wall Street Journal reports that the largest four domestic airlines now account for over 80% of all domestic air travel (up from only 30% ten years ago). The WS) article indicates that these four airlines have effectively become a cartel since prices are rising, flights are full, and profits are large. . If there is no further consolidation in the airline industry, comment on the likelihood that the four airlines will be able to maintain a cartel. (5) b. If you were the CEO of one of these airlines, what steps could you take to increase the likelihood of long run elevated profits? (5) 9. Let's assume that there are two potential customers for cable service in my town of Ulysses (this in an exaggeration, but it is a small town) - let's call them customer and 2. Customer A values the first cable box at $10, and the second at $60. Customer values the first cable box at 560 and the second at $281. The cost to the cable firm of providing cable boxes is reto. 1. With perfect price discrimination, what will be the firm profit? (5) b. Now let's assume the cable company does not know exactly which customer has the different values for cable, but that it does know what the distribution of values ate. The cable company wants the customers to reveal their values through different pricing plans. The cable company can potentially offer two different packages. The first package would be for a price single cable box. The second plan would be a single price for two cable boxes. NOTE: If it is profit maximizing, to only offer one of the two plans then that is what it will do. What plans should the company offer, and how shodla it price the plans, given that the customers will select the plan that maximizes their consumer surplus? To car partial credit, you can demonstrate the various plans that you try (5) 10. The Wall Street Journal reports that the largest four domestic airlines now account for over 80% of all domestic air travel (up from only 30% ten years ago). The WS) article indicates that these four airlines have effectively become a cartel since prices are rising, flights are full, and profits are large. . If there is no further consolidation in the airline industry, comment on the likelihood that the four airlines will be able to maintain a cartel. (5) b. If you were the CEO of one of these airlines, what steps could you take to increase the likelihood of long run elevated profits
