1.) A firm with market power faces the following demand and cost.

P = 60 - Q Cost = 0.5Q ^2 (no fixed cost)

MC = Q

a) If the firm does not price discriminate, what quantity will it produce and what price will it charge? What will be the firm's profit?

b) What will be the firm's profit with perfect price discrimination?

c) To implement perfect price discrimination you will have to use salespersons. What is the maximum amount total you will spend on salespersons?

2. The demand of a typical consumer for a good is given by

P = 15 - Q

The firm's cost is given by Cost = 0.5Q^ 2 (no fixed cost)

MC = Q

a) Charging only one price, what will be the firm's profit earned from a typical consumer (find Q, P, then profit)

b) Using two-part pricing , what will be the entry (membership) fee? What will be the per-unit fee?

c) Compute the profit earned from a typical consumer with two-part pricing. Hint: same as perfect price discrimination profit.