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1. Imagine that Pepsi has a monopoly in the market. For the holidays, they offer one soda can at the normal price and a "special edition" can with faces of famous American celebrities. The special edition costs 20 cents more than the regular can. In a different promotion at a different store, Pepsi offers a discount to individuals willing to buy 5 bottles or more of the regular can. Are these examples of the same type of price discrimination? Answer "Yes" or "No" and explain the logic behind your answer.
2. For the volume discount example above, explain why this move results in more (or less) profits for a monopolist compared to a monopolist offering a single price.
3. Trader Joe's charges $2 / bottle for its house brand of wine in California and $3 for the same bottle in Chicago. Provide one example in which the price difference is due to price discrimination and another in which it is not.
4. What is the fundamental difference between second-degree price discrimination from first degree price discrimination?
5. Imagine that you are selling telephones with two segments of monthly users: individuals who make very few calls, versus those who make many. Based on the example in the notes/class, how might you price this product in the market (per month)? What is the critical piece of information that you need to know about low volume users' willingness to pay in order to solve this problem efficiently?
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