3. George’s Seafood sells its clam chowder in Boston and New York. George’s has estimated that the demands in these two markets are respectively: (i) QB = 10, 000 − 1, 000PB for Boston; and(ii) QNY =...

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3. George’s Seafood sells its clam chowder in Boston and New York. George’s has estimated that the demands in these two markets are respectively: (i) QB = 10, 000 − 1, 000PB for Boston; and(ii) QNY = 20, 000 − 2, 000PNY . Quantities are litres of clam chowder per day. The marginal cost of making a litre of clam chowder in George’s facility is $1. (a) Suppose charges the same price in both markets. How much does George’s Seafood produce and what price is charged? What are George’s profits? What are the consumer and producer surpluses in this situation? (3) (b) Now suppose that George’s Seafood changes a different price in Boston and New York. What are the profit-maximizing prices that George’s should set in the two markets? How much chowder is sold per day in each market? What profit does George’s make in each market? (4) (c) Given you answer in parts (a) and (b), explain why George’s Seafood has higher profit when charging different prices in each market (2) (d) Are consumers in Boston or New York better off or worse off with different prices in each market or the same price in each market? Does the answer make sense? Explain (2) (e) If George’s Seafood is able to perfectly price discriminate then how much should it produce in each market? Explain (2)


ECON 2037 Intermediate Microeconomics II - Winter 2021 Assignment 2 Instruction: Answer ALL Questions. Show your work for any calculations done. Total marks 30. Due Date: February 23, 2021 1. The notes reference an article about the Princeton Review pricing. Atlantic 2015 which is avail- able at: https://www.theatlantic.com/education/archive/2015/09/princeton-review-expensive-asian-students/403510/ (a) Explain how the Princeton Review offers different prices for its tutoring service. What consumer characteristic determines a price a consumer pays? (2) (b) How are the three necessary conditions for price discrimination satisfies in this example? Explain (3) (c) Are there any other possible explanations for the pricing differences by the Princeton Review? Explain (2) 2. Suppose we have a very small town with just one barbershop. The Barber’s costs are $5 for each haircut that he provides (ie. marginal cost is $5). The local barber in the small town of 8 people has done a study on the value people place on a haircut. From highest to lowest valuation of buyers, the buyer valuation of a yearly haircut is $20, $18, $16, $14, $12, $10, $8 and $3. (a) Each person only wants one haircut per year and has a valuation of zero for a second haircut. A person only purchases a haircut if the price of a haircut is less than or equal to his/her buyer value. What price does the barber charge for a haircut and how many haircuts are done by the barber in a given year? (2) (b) The barber notices that there are 4 redheads in the town and 4 non-redheads in the town. The 4 redheads have buyer values of $18, $12, $10, and $3, while the 4 non-redheads have buyer values of $20, $16, $14, and $8. The barber continues to be the monopoly barber shop in town. What price should the barber charge redheads? What price should the barber change non-redheads? What are the barber’s profits from redheads? Profits from non-redheads? Total profits? (3) 3. George’s Seafood sells its clam chowder in Boston and New York. George’s has estimated that the demands in these two markets are respectively: (i) QB = 10, 000 − 1, 000PB for Boston; and(ii) QNY = 20, 000 − 2, 000PNY . Quantities are litres of clam chowder per day. The marginal cost of making a litre of clam chowder in George’s facility is $1. (a) Suppose charges the same price in both markets. How much does George’s Seafood produce and what price is charged? What are George’s profits? What are the consumer and producer surpluses in this situation? (3) (b) Now suppose that George’s Seafood changes a different price in Boston and New York. What are the profit-maximizing prices that George’s should set in the two markets? How much chowder is sold per day in each market? What profit does George’s make in each market? (4) (c) Given you answer in parts (a) and (b), explain why George’s Seafood has higher profit when charging different prices in each market (2) (d) Are consumers in Boston or New York better off or worse off with different prices in each market or the same price in each market? Does the answer make sense? Explain (2) (e) If George’s Seafood is able to perfectly price discriminate then how much should it produce in each market? Explain (2) 4. Answer all the following questions True, False or Uncertain. Give a brief explanation of your answer. You receive 1 mark for correctly identifying T, F or U and 2 marks for your explanation. (a) A Nash Equilibrium guarantees the highest payoff for a player. (b) A price discriminating firm always produces an output level that is preferred by consumers. https://www.theatlantic.com/education/archive/2015/09/princeton-review-expensive-asian-students/403510/
Answered 2 days AfterFeb 21, 2021

Answer To: 3. George’s Seafood sells its clam chowder in Boston and New York. George’s has estimated that the...

Komalavalli answered on Feb 24 2021
146 Votes
Question 3
a)
Q = 30,000 – 3000P        ----------- (1)
P = (30000 – Q)/3000
TR = PQ
TR = (30000Q – Q
2)/3000
MR = (30000 – 2Q)/1500
MC = 1
Equilibrium condition
MR =MC
(30000 –2Q)/1500 = 1
30000 – 2Q =1500
30,000 – 1500 =2Q
Q =28500/2
Q=14250
Substituting Q =14250in P
P = (30000 – 14250)/3000
P = 15750/3000
P =5
Therefore George’s seafood produces 14250 units of and the price charged was $5 per unit.
ATC = TC/Q = 1
TC = Q
Profits = TR –TC
Profits = 5*14250 –14250
Profits = 57,000
Consumer surplus = ½*(30,000-14250)
        = ½*15750
Consumer surplus =7875
Producer surplus = 7875
b)
QB = 10, 000 − 1, 000PB
QNY = 20, 000 − 2, 000PNY
First we look in to Boston market        
QB = 10, 000 − 1, 000PB
PB = (10,000 –QB)/1000
TR = PQ
TR = (10,000Q –Q2)/1000
MR = (10,000 – 2Q)/1000
Equilibrium condition
MR = MC
(10,000 – 2Q)/1000 = 1
10,000 – 2Q= 1000
11,000 = 2Q
Q = 11000/2
Q = 5500
Substituting...
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