Marginal cost of production

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Reference no: EM131280991

1. Assume that the Jambo Corporation produces two goods and that the marginal cost of production for each is effectively zero. Discuss the trade-off in terms of the total revenue values that this firm faces in choosing to price these goods separately at a value of $36 per unit or in a pure bundle for $40. Use a graphical framework to illustrate the separate prices and bundle price for both of these alternatives. For each area identified in this framework state the relationship between the reservation price and bundle and/or individual price.

2. Discuss the meaning of third degree price discrimination. Assume that in a given market there are two groups of consumers: A and B. Group A possesses a price elasticity of demand of -2, while group B possesses a price elasticity of demand of -5. If marginal cost is constant at $2, discuss how one could find the price and coupon values at which profits are maximized. Discuss how this calculation relates to the definition of price discrimination.

3. Using a graphical framework, explain why a pure monopolist might wish to engage in price discrimination. Discuss the meaning of first, second and third degree price discrimination. Provide examples that illustrate the character of each type of price discrimination.

Reference no: EM131280991

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