Question 1:
A football club is the only one in itsregion and is therefore able to behave like a monopolist.
It sells tickets to Adults (?) andJuniors (?), whose demand curves are given by:
?! =100−?!
?\" =80−?\"
Additionally, the club’s total costsare given by ?? = 10?
- Initially, the club sets its price by charging all supportersthe same price, according to the aggregate market demand curve.Calculate the maximising output, price and the resulting profit forthe club as well as consumer surplus.
- The club hires an economist to consider its pricing strategyand receives the advice that it should charge different prices toeach type of supporter. Find the prices it sets in both markets,the sales (output) in each and its overall level of profit andillustrate profit maximising outputs and prices of each consumertype on a graph (one graph for each type of consumer). Calculateconsumer surplus in this case.
- What conditions must be satisfied for a producer to be able toimplement a policy of price discrimination?
Question 2:
The following table presents theprice, output and profits for identical firms at industry and firmlevel. Suppose there are currently four firms in the market and twoare proposing to merge (firm 3 and 4). Assume that the remainingthree (the one merged firm plus the two unmerged firms) continue toexhibit Cournot behavior.
a) Explain the mergerparadox using data from the table below. How the merged firm (firm3 and 4) will be worse off?
b) How would thisoutcome differ if all four firms merged?
c) Explain what isthe motivation for two firms to merge.
Number of Firms | Price | Industry level | F | irm level |
Output | Profits | Output | Profits |
1 | 58 | 21 | 1092 | 21 | 1092 |
2 | 44 | 28 | 1064 | 14 | 532 |
3 | 37 | 31.5 | 976.5 | 10.5 | 325.5 |
4 | 32.8 | 33.6 | 900.48 | 8.4 | 225.12 |
Output is measured in thousands ofunits and profits are measured in thousands of pounds perweek.
Question 3:
Consider a market with two identicalfirms, Firm A and Firm B. The market demand is ? = 20−#$?, where ? = ?% +?& . The cost conditionsare ??% = ??& = 16.
a) Assume this market has aStackelberg leader, Firm A. Solve for the quantity, price andprofit for each firm. Explain your calculations.
b) How does this compare to theCournot-Nash equilibrium quantity, price and profit? Explain yourcalculations.
c) Present the Stackelberg and Cournotequilibrium output using a diagram.
- The crude oil market can be described as a Nash-Cournot market,in which Saudi Arabia acts as Stackelberg leader. Do you agree withthis statement?
