Industrial organization problem set
Industrial Organization, Spring Semester (2013) Mark McCabe
Problem Set 1
Due in class on 27. March
Instructions:
Please show all of your work, e.g. all of the calculations associated with each solution. Your solutions should be typed and not handwritten. As I mentioned in class, students may work together to solve these problems, but plagiarism or copying is not permitted.
On the 27th, please bring a paper copy to class, and e-mail me a digital copy
(mccabe@umich.edu) before the beginning of class.
1. At the local Castorama in Antibes, firewood is sold during the winter in two different bundle sizes, large and small. There are two types of customers: NH
“high demanders,” each with an inverse demand (or willingness to pay) equal to PH
= 20 – QH, and NL “low demanders,” each with an inverse demand equal to PL = 10
– QL. QH and QL are the amounts of wood contained in the large and small bundles, respectively. Castorama cannot identify a customer’s type, but is aware of the number of customers in each group, and their respective willingness to pay functions. To maximize its profits, what prices (or tariffs), TH and TL (in €), should
Castorama choose for each bundle? What are the corresponding bundles sizes, QH and QL? To simplify your analysis assume that the cost of each bundle is zero.
2. The managers of the Nice Philharmonic Orchestra can identify two different groups of customers, students and non-students. Weekly student demand is Q = 10
– P, and non-student demand is Q = 100 – P. Marginal costs are zero.
a. Suppose the NPO price discriminated according to student status. Calculate the price charged, the number of tickets sold, and profits earned from each group.
b. Suppose the NPO set a single, uniform price for both groups. Calculate the price charged, the number of tickets sold to each group, and the corresponding profits. c. Which price strategy should be adopted by the NPO?
3. Consider a country that can be divided into two
Problem Set 1
Due in class on 27. March
Instructions:
Please show all of your work, e.g. all of the calculations associated with each solution. Your solutions should be typed and not handwritten. As I mentioned in class, students may work together to solve these problems, but plagiarism or copying is not permitted.
On the 27th, please bring a paper copy to class, and e-mail me a digital copy
(mccabe@umich.edu) before the beginning of class.
1. At the local Castorama in Antibes, firewood is sold during the winter in two different bundle sizes, large and small. There are two types of customers: NH
“high demanders,” each with an inverse demand (or willingness to pay) equal to PH
= 20 – QH, and NL “low demanders,” each with an inverse demand equal to PL = 10
– QL. QH and QL are the amounts of wood contained in the large and small bundles, respectively. Castorama cannot identify a customer’s type, but is aware of the number of customers in each group, and their respective willingness to pay functions. To maximize its profits, what prices (or tariffs), TH and TL (in €), should
Castorama choose for each bundle? What are the corresponding bundles sizes, QH and QL? To simplify your analysis assume that the cost of each bundle is zero.
2. The managers of the Nice Philharmonic Orchestra can identify two different groups of customers, students and non-students. Weekly student demand is Q = 10
– P, and non-student demand is Q = 100 – P. Marginal costs are zero.
a. Suppose the NPO price discriminated according to student status. Calculate the price charged, the number of tickets sold, and profits earned from each group.
b. Suppose the NPO set a single, uniform price for both groups. Calculate the price charged, the number of tickets sold to each group, and the corresponding profits. c. Which price strategy should be adopted by the NPO?
3. Consider a country that can be divided into two