Problem Set 1. Bundle pricing (approximates firstdegree price discrimination).
Exercise \(\PageIndex{1}\)
Given the following:
The individual inverse demand is P = 102Q.
Marginal cost is 4.
Assume all individuals in the market have this inverse demand.
What is the bundle size, bundle price, and profits per bundle?
What is consumer surplus after purchasing the bundle?
 Answer

The bundle size is 3 units.
The bundle price is 21 dollars.
Profits per bundle are 9 dollars.
Consumer surplus is 0 dollars.
Exercise \(\PageIndex{2}\)
Given the following:
The individual inverse demand is P = 93Q.
Marginal cost is 3.
Assume all individuals in the market have this inverse demand.
What is the bundle size, bundle price, and profits per bundle?
What is consumer surplus after purchasing the bundle?
 Answer

The bundle size is 2 units.
The bundle price is 12 dollars.
Profits per bundle are 6 dollars.
Consumer surplus is 0 dollars.
Exercise \(\PageIndex{3}\)
Given the following:
The individual inverse demand is P = 61.5Q.
Marginal cost is 3.
Assume all individuals in the market have this inverse demand.
What is the bundle size, bundle price, and profits per bundle?
What is consumer surplus after purchasing the bundle?
 Answer

The bundle size is 2 units.
The bundle price is 9 dollars.
Profits per bundle are 3 dollars.
Consumer surplus is 0 dollars.
Exercise \(\PageIndex{4}\)
Given the following:
The individual inverse demand is P = 122Q.
Marginal cost is 6.
Assume all individuals in the market have this inverse demand.
What is the bundle size, bundle price, and profits per bundle?
What is consumer surplus after purchasing the bundle?
 Answer

The bundle size is 3 units.
The bundle price is 27 dollars.
Profits per bundle are 9 dollars.
Consumer surplus is 0 dollars.
Exercise \(\PageIndex{5}\)
Given the following:
The individual inverse demand is P = 243Q.
Marginal cost is 6.
Assume all individuals in the market have this inverse demand.
What is the bundle size, bundle price, and profits per bundle?
What is consumer surplus after purchasing the bundle?
 Answer

The bundle size is 6 units.
The bundle price is 90 dollars.
Profits per bundle are 54 dollars.
Consumer surplus is 0 dollars.
Exercise \(\PageIndex{6}\)
Given the following:
The individual inverse demand is P = 324Q.
Marginal cost is 16.
Assume all individuals in the market have this inverse demand.
What is the bundle size, bundle price, and profits per bundle?
What is consumer surplus after purchasing the bundle?
 Answer

Add texts here. Do not delete this text first.
Exercise \(\PageIndex{7}\)
Given the following:
The individual inverse demand is P = 202Q.
Marginal cost is 10.
Assume all individuals in the market have this inverse demand.
What is the bundle size, bundle price, and profits per bundle?
What is consumer surplus after purchasing the bundle?
 Answer

The bundle size is 5 units.
The bundle price is 75 dollars.
Profits per bundle are 25 dollars.
Consumer surplus is 0 dollars.
Exercise \(\PageIndex{8}\)
Given the following:
The individual inverse demand is P = 123Q.
Marginal cost is 6.
Assume all individuals in the market have this inverse demand.
What is the bundle size, bundle price, and profits per bundle?
What is consumer surplus after purchasing the bundle?
 Answer

The bundle size is 2 units.
The bundle price is 18 dollars.
Profits per bundle are 6 dollars.
Consumer surplus is 0 dollars.
Exercise \(\PageIndex{9}\)
Given the following:
The individual inverse demand is P = 153Q.
Marginal cost is 3.
Assume all individuals in the market have this inverse demand.
What is the bundle size, bundle price, and profits per bundle?
What is consumer surplus after purchasing the bundle?
 Answer

The bundle size is 4 units.
The bundle price is 36 dollars.
Profits per bundle are 24 dollars.
Consumer surplus is 0 dollars.
Exercise \(\PageIndex{10}\)
Given the following:
The individual inverse demand is P = 82Q.
Marginal cost is 4.
Assume all individuals in the market have this inverse demand.
What is the bundle size, bundle price, and profits per bundle?
What is consumer surplus after purchasing the bundle?
 Answer

The bundle size is 2 units.
The bundle price is 12 dollars.
Profits per bundle are 4 dollars.
Consumer surplus is 0 dollars.
Problem Set 2. Access fee (approximates firstdegree price discrimination).
Exercise \(\PageIndex{1}\)
Given the following:
The individual inverse demand is P = 102Q.
Marginal cost is 4.
Assume all individuals in the market have this inverse demand.
What is the access fee and perunit price?
How many units will each customer purchase after paying the access fee?
What are the firm's profits per customer?
How much consumer surplus does each customer get?
 Answer

The access fee is 9 dollars.
The perunit price is 4 dollars.
Each customer buys 3 units.
Profits per customer are 9 dollars.
Each customer's surplus is 0 dollars.
Exercise \(\PageIndex{2}\)
Given the following:
The individual inverse demand is P = 93Q.
Marginal cost is 3.
Assume all individuals in the market have this inverse demand.
What is the access fee and perunit price?
How many units will each customer purchase after paying the access fee?
What are the firm's profits per customer?
How much consumer surplus does each customer get?
 Answer

The access fee is 6 dollars.
The perunit price is 3 dollars.
Each customer buys 2 units.
Profits per customer are 6 dollars.
Each customer's surplus is 0 dollars.
Exercise \(\PageIndex{3}\)
Given the following:
The individual inverse demand is P = 61.5Q.
Marginal cost is 3.
Assume all individuals in the market have this inverse demand.
What is the access fee and perunit price?
How many units will each customer purchase after paying the access fee?
What are the firm's profits per customer?
How much consumer surplus does each customer get?
 Answer

The access fee is 3 dollars.
The perunit price is 3 dollars.
Each customer buys 2 units.
Profits per customer are 3 dollars.
Each customer's surplus is 0 dollars.
Exercise \(\PageIndex{4}\)
Given the following:
The individual inverse demand is P = 122Q.
Marginal cost is 6.
Assume all individuals in the market have this inverse demand.
What is the access fee and perunit price?
How many units will each customer purchase after paying the access fee?
What are the firm's profits per customer?
How much consumer surplus does each customer get?
 Answer

The access fee is 9 dollars.
The perunit price is 6 dollars.
Each customer buys 3 units.
Profits per customer are 9 dollars.
Each customer's surplus is 0 dollars.
Exercise \(\PageIndex{5}\)
Given the following:
The individual inverse demand is P = 243Q.
Marginal cost is 6.
Assume all individuals in the market have this inverse demand.
What is the access fee and perunit price?
How many units will each customer purchase after paying the access fee?
What are the firm's profits per customer?
How much consumer surplus does each customer get?
 Answer

The access fee is 54 dollars.
The perunit price is 6 dollars.
Each customer buys 6 units.
Profits per customer are 54 dollars.
Each customer's surplus is 0 dollars.
Exercise \(\PageIndex{6}\)
Given the following:
The individual inverse demand is P = 324Q.
Marginal cost is 16.
Assume all individuals in the market have this inverse demand.
What is the access fee and perunit price?
How many units will each customer purchase after paying the access fee?
What are the firm's profits per customer?
How much consumer surplus does each customer get?
 Answer

The access fee is 32 dollars.
The perunit price is 16 dollars.
Each customer buys 4 units.
Profits per customer are 32 dollars.
Each customer's surplus is 0 dollars.
Exercise \(\PageIndex{7}\)
Given the following:
The individual inverse demand is P = 202Q.
Marginal cost is 10.
Assume all individuals in the market have this inverse demand.
What is the access fee and perunit price?
How many units will each customer purchase after paying the access fee?
What are the firm's profits per customer?
How much consumer surplus does each customer get?
 Answer

The access fee is 25 dollars.
The perunit price is 10 dollars.
Each customer buys 5 units.
Profits per customer are 25 dollars.
Each customer's surplus is 0 dollars
Exercise \(\PageIndex{8}\)
Given the following:
The individual inverse demand is P = 123Q.
Marginal cost is 6.
Assume all individuals in the market have this inverse demand.
What is the access fee and perunit price?
How many units will each customer purchase after paying the access fee?
What are the firm's profits per customer?
How much consumer surplus does each customer get?
 Answer

The access fee is 6 dollars.
The perunit price is 6 dollars.
Each customer buys 2 units.
Profits per customer are 6 dollars.
Each customer's surplus is 0 dollars.
Exercise \(\PageIndex{9}\)
Given the following:
The individual inverse demand is P = 153Q.
Marginal cost is 3.
Assume all individuals in the market have this inverse demand.
What is the access fee and perunit price?
How many units will each customer purchase after paying the access fee?
What are the firm's profits per customer?
How much consumer surplus does each customer get?
 Answer

The access fee is 24 dollars.
The perunit price is 3 dollars.
Each customer buys 4 units.
Profits per customer are 24 dollars.
Each customer's surplus is 0 dollars.
Exercise \(\PageIndex{10}\)
Given the following:
The individual inverse demand is P = 82Q.
Marginal cost is 4.
Assume all individuals in the market have this inverse demand.
What is the access fee and perunit price?
How many units will each customer purchase after paying the access fee?
What are the firm's profits per customer?
How much consumer surplus does each customer get?
 Answer

The access fee is 4 dollars.
The perunit price is 4 dollars.
Each customer buys 2 units.
Profits per customer are 4 dollars.
Each customer's surplus is 0 dollars.
Problem Set 3. Prices charged to each segment (thirddegree price discrimination).
Exercise \(\PageIndex{1}\)
Given the following:
Sement 1's elasticity is 2.
Sement 2's elasticity is 3.
Marginal cost is 2.
Assume thirddegree price discrimination is feasible.
What price is charged to Segment 1?
What price is charged to Segment 2?
 Answer

Segment 1 is charged 4 dollars.
Segment 2 is charged 3 dollars.
Exercise \(\PageIndex{2}\)
Given the following:
Sement 1's elasticity is 4.
Sement 2's elasticity is 1.5.
Marginal cost is 3.
Assume thirddegree price discrimination is feasible.
What price is charged to Segment 1?
What price is charged to Segment 2?
 Answer

Segment 1 is charged 4 dollars.
Segment 2 is charged 9 dollars.
Exercise \(\PageIndex{3}\)
Given the following:
Sement 1's elasticity is 3.
Sement 2's elasticity is 2.
Marginal cost is 4.
Assume thirddegree price discrimination is feasible.
What price is charged to Segment 1?
What price is charged to Segment 2?
 Answer

Segment 1 is charged 6 dollars.
Segment 2 is charged 8 dollars.
Exercise \(\PageIndex{4}\)
Given the following:
Sement 1's elasticity is 2.
Sement 2's elasticity is 1.5.
Marginal cost is 5.
Assume thirddegree price discrimination is feasible.
What price is charged to Segment 1?
What price is charged to Segment 2?
 Answer

Segment 1 is charged 10 dollars.
Segment 2 is charged 15 dollars.
Exercise \(\PageIndex{5}\)
Given the following:
Sement 1's elasticity is 2.
Sement 2's elasticity is 3.
Marginal cost is 4.
Assume thirddegree price discrimination is feasible.
What price is charged to Segment 1?
What price is charged to Segment 2?
 Answer

Segment 1 is charged 8 dollars.
Segment 2 is charged 6 dollars.
Exercise \(\PageIndex{6}\)
Given the following:
Sement 1's elasticity is 4.
Sement 2's elasticity is 2.
Marginal cost is 3.
Assume thirddegree price discrimination is feasible.
What price is charged to Segment 1?
What price is charged to Segment 2?
 Answer

Segment 1 is charged 4 dollars.
Segment 2 is charged 6 dollars.
Exercise \(\PageIndex{7}\)
Given the following:
Sement 1's elasticity is 2.
Sement 2's elasticity is 3.
Marginal cost is 2.
Assume thirddegree price discrimination is feasible.
What price is charged to Segment 1?
What price is charged to Segment 2?
 Answer

Exercise \(\PageIndex{8}\)
Given the following:
Sement 1's elasticity is 4.
Sement 2's elasticity is 2.
Marginal cost is 3.
Assume thirddegree price discrimination is feasible.
What price is charged to Segment 1?
What price is charged to Segment 2?
 Answer

Segment 1 is charged 4 dollars.
Segment 2 is charged 6 dollars.
Exercise \(\PageIndex{9}\)
Given the following:
Sement 1's elasticity is 4.
Sement 2's elasticity is 2.
Marginal cost is 6.
Assume thirddegree price discrimination is feasible.
What price is charged to Segment 1?
What price is charged to Segment 2?
 Answer

Segment 1 is charged 8 dollars.
Segment 2 is charged 12 dollars.
Exercise \(\PageIndex{10}\)
Given the following:
Sement 1's elasticity is 6.
Sement 2's elasticity is 2.
Marginal cost is 5.
Assume thirddegree price discrimination is feasible.
What price is charged to Segment 1?
What price is charged to Segment 2?
 Answer

Segment 1 is charged 6 dollars.
Segment 2 is charged 10 dollars.
Problem Set 4. Multiple Choice
Exercise \(\PageIndex{1}\)
 Which best explains price discrimination?
a) Charging different prices based on quality differences
b) Charging higher prices to reflect higher costs of service
c) Charging different prices for the same product based on willingness to pay
d) All of the above
 Answer

c
Exercise \(\PageIndex{2}\)
 Which practice is most consistent with seconddegree price discrimination?
a) Charging access fees that are equal to consumer surplus
b) Volume discounts
c) Special offers for groups of consumers (e.g., student discounts)
d) All of the above
 Answer

b
Exercise \(\PageIndex{3}\)
 Which practice could approximate firstdegree price discrimination?
a) Charging access fees that are equal to consumer surplus
b) Volume discounts
c) Special offers for groups of consumers (e.g., student discounts)
d) All of the above
 Answer

a
Exercise \(\PageIndex{4}\)
 Under thirddegree price discrimination
a) The firm takes the consumer’s entire surplus
b) The firm sets the monopoly or monopolistically competitive price (MR = MC) in each of the market segments it faces
c) The firm must worry about selfselection constraints and so must leave some surplus for high demand customers
d) The firm charges the competitive price (P = MC)
 Answer

b
Exercise \(\PageIndex{5}\)
 If individual demands are homogeneous, bundle pricing can approximate
a) Firstdegree price discrimination
b) Seconddegree price discrimination
c) Thirddegree price discrimination
d) Fourthdegree price discrimination
 Answer

a
Exercise \(\PageIndex{6}\)
 If individual demands are homogeneous, an access fee plus fixed price per unit can approximate
a) Firstdegree price discrimination
b) Seconddegree price discrimination
c) Thirddegree price discrimination
d) Fourthdegree price discrimination
 Answer

a
Exercise \(\PageIndex{7}\)
 In which case does the seller set price to take the consumer’s entire surplus?
a) Firstdegree price discrimination
b) Seconddegree price discrimination
c) Thirddegree price discrimination
d) Fourthdegree price discrimination
 Answer

a
Exercise \(\PageIndex{8}\)
 When would thirddegree price discrimination not work?
a) When the market can be divided into segments with very different elasticities of demand
b) When all market segments have very similar elasticities of demand
c) When resale between segments is easy
d) Both (b) and (c)
 Answer

d