QUESTION 83 a) Calculate the deadweight loss due to profit maximizing monopoly pricing under the following conditions The price charged for goods produced is $10 The intersection of the marginal revenue and marginal cost curves occurs where output is 100 units and marginal revenue is $5 The socially efficient level of production is 110 units The demand curve is linear and downward sloping and the marginal cost curve is linear and upward sloping For full marks include an acurate drawing of the problem (4 marks) b) A beer company is looking to maximize its profits They sell beer for $5 00 per bottle to two types of consumers, A and B These two groups have different willingness to pay for beer, as shown in the table below Beer costs $1 00 per bottle to produce How much will A and B consume What will be the profits for the firm (3 marks) A B Q WTP WTP 1 $7 00 $10 00 2 $5 50 $6 10 3 $5 30 $2 50 4 $4 30 $1 50 5 $2 50 $1 00 6 $1 50 $0 50 c) This question follows (b) Suppose the firm introduces a quantity discount as well 6 beers for $22 Will either A or B choose to buy this instead, or will they stay with their choice in (a) What will happen to profits Can the firm increase profits further by raising the price of single beers after introducing the quantity discount (3 Marks)

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QUESTION 83

a) Calculate the deadweight loss due to profit-maximizing monopoly pricing under the following conditions: The price charged for goods produced is $10. The intersection of the marginal revenue and marginal cost curves occurs where output is 100 units and marginal revenue is $5. The socially efficient level of production is 110 units. The demand curve is linear and downward sloping and the marginal cost curve is linear and upward sloping. For full marks include an acurate drawing of the problem. (4 marks)
b) A beer company is looking to maximize its profits. They sell beer for $5.00 per bottle to two types of consumers, A and B. These two groups have different willingness to pay for beer, as shown in the table below. Beer costs $1.00 per bottle to produce.How much will A and B consume? What will be the profits for the firm? (3 marks)
A
B
Q
WTP
WTP
1
$7.00
$10.00
2
$5.50
$6.10
3
$5.30
$2.50
4
$4.30
$1.50
5
$2.50
$1.00
6
$1.50
$0.50
c) [This question follows (b)] Suppose the firm introduces a quantity discount as well: 6 beers for $22. Will either A or B choose to buy this instead, or will they stay with their choice in (a)? What will happen to profits? Can the firm increase profits further by raising the price of single beers after introducing the quantity discount?(3 Marks)