1. A television newscaster said, "Janet Jones is $20 million richer today. She just won the Florida lottery, which will pay her $1 million per year for each of the next twenty years." Is she really $20 million richer?
2. Some time ago, most of the major airlines issued student travel cards at a nominal price. These cards permitted college students to fly "space available" (that is, no reservations allowed) at substantial discounts. When this practice was in effect, some older non students were using the cards, and some students were insuring themselves available space by reserving seats for fictitious passengers who then do not show up for the flight.
(a) Did the discount represent price discrimination?
(b) Did the conditions necessary for a successful price discrimination exist?
3. Assume that the soft coal industry is a competitive industry and it is in long run equilibrium. Now assume that the firms in the industry form a cartel.
(a) What will happen to the equilibrium output and price of coal, and why?
(b) After the cartel is operating, are there incentives for the individual firms to cheat? Why?
(c) Does the possibility of entry by all the firms make a difference in the behavior of the cartel?