1. Price Discrimination
A. Indicate the kinds of price discrimination for the cases below.
Case A1. Gino Pizza offers a lunch special: 5.59$ for the grilled chicken sandwich, a bottle of soft drink, and a small bag of potato chips. If you buy them separately, their prices are: 4.89$ for chicken sandwich, 1.50$ for soft drink, and 0.99$ for potato chips.
Case A2. Guggenheim Museum charges its customers in following way: adults 18$, seniors (above 65) 15$, and children (under 12) free.
Case A3. T-Mobile offers various cell phone service plans targeting at several consumer groups, like 39.99$ for 300 min, 49.99$ for 600 min and 59.99$ for 1000 min.
2. Cournot Model
Consider a Cournot duopoly. The market demand is p=190-q1-q2. Firm 1’s marginal cost is 40, and firm 2’s marginal cost is also 40. There are no fixed costs.
A. Derive each firm’s best response function.
B. Find the Nash equilibrium of this model? Find the equilibrium market price.
C. Determine the equilibrium profit for each firm.
D. Determine the equilibrium consumer surplus in this market.
3. Bertrand Model
Consider a Bertrand duopoly. The market demand is q=190-p. Consumers only buy from the firm whose price is lower. If two firms charge the same price, they share market equally. Marginal cost for firm 1 is 40, and marginal cost for firm 2 is also 40. There are no fixed costs.
A. Find the Nash equilibrium of this Bertrand game.
B. Find the equilibrium output and profit for each firm.
Now assume that marginal cost for firm 2 is 30 rather than 40. What are your new answers to problem part A and part B?