Exercises: Pricing/monopoly/price-discrimination (simpler)
Exeter BEEM101 students, 2020: please do these exercises before the midterm.
Suggested answers are now available in the usual location
5.13 OR 7.1: Double Margins (all parts)
Exeter BEEM101 students:
Extended answer HERE (class notebook)
Recording HERE covers double-markups for a case of unit demand, extending the case given in O-R to show the loss from having the two levels of uniform price monopoly.
Here I cover the downward-sloping demand case for double markups; apologies that i seem to be blocking the camera in parts.
5.14 Welfare loss of monopoly: Discussion question from a prior exam
- Depict and discuss the welfare costs of monopoly power as a ‘market failure’. What are some factors that may lead estimates of these costs to be higher or lower?
See especially the section The deadweight loss of monopoly and accompanying discussion in the NS text.
You should identify the DWL of monopoly as a reduction in top-level (allocative) efficiency. Please discuss this clearly and in your own words, showing your understanding.
- Will price discrimination reduce or increase the welfare cost of monopoly. Discuss.
‘Perfect’ price discrimination reduces the welfare loss, but is a theoretical ideal, not a realistic real-world practice. See here; illustrate this in a simple diagram.
2dpd and 3dpd may increase or reduce the welfare cost of monopoly (i.e., reduce or increase welfare relative to a single-price monopoly). There is a tradeoff between a reduction in exchange efficiency and a possible increase in output which would imply an increase in alloctive efficiency. See extensive discussion of 3dpd here and in linked readings. State and explain this in your own words.