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Q1. Suppose that individual demand for a product is given by QD= 1000 - 5P. Marginal revenue is MR=200 - 0.4Q, and marginal cost is constant at $20. There are no fixed costs.
a. The firm is considering a quantity discount. The first 400 units can be purchased at a price of $120, and further units can be purchased at a price of $80. How many units will the consumer buy in total?
b. Show that this second-degree price - discrimination scheme is more profitable than a single monopoly price.
Q2. Publishers have traditionally sold textbooks at different prices in different areas of the world. For example, a textbook that sell for $70 in the United States might sell for $5 in India. Although the Indian version might be printed on cheaper paper and lack color illustration, it provides essentially the same information. Indian customers typically cannot afford to pay the US price.
a. Use the theories of price discrimination presented in this chapter to explain this strategy.
b. If the publisher decides to sell this textbook online, what problem will this present for pricing strategy? How might the publisher respond?
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