Each employer faces competitive weekly wages of $1,600 for blacks and $2,400 for whites. Suppose employers undervalue the efforts/skills of blacks in the production process. In particular, every firm is associated with a discrimination coefficient d, (0,1), such that, although a firm's actual production function is q=10(Eb+Ew), the firm manager acts as if its production function is q=10(1-d)Eb+10Ew. Every firm sells its output at a constant price of $280 per unit up to a weekly total of 150 units of output. No firm can sell more than 150 units of output without reducing its price to $0.
a) Describe the employment decision, output level and profits made by firms for which d = 0.25 and d = 0.75 respectively.
b) For what value(s) of d is a firm willing to hire blacks and whites?
Each employer faces competitive weekly wages of $1,600 for blacks and $2,400 for whites. Suppose employers undervalue the efforts/skills of blacks in the production process. In particular, every firm is associated with a discrimination coefficient d, (0,1), such that, although a firm's actual production function is q=10(Eb+Ew), the firm manager acts as if its production function is q=10(1-d)Eb+10Ew. Every firm sells its output at a constant price of $280 per unit up to a weekly total of 150 units of output. No firm can sell more than 150 units of output without reducing its price to $0.
a) Describe the employment decision, output level and profits made by firms for which d = 0.25 and d = 0.75 respectively.
b) For what value(s) of d is a firm willing to hire blacks and whites?
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Related questions
PLEASE ANSWER EACH QUESTION WITH A, B, C, and D. NOT ANSWERING ALL QUESTIONS OR INCORRECT ANSWERS WILL RESULT IN A THUMBS DOWN.
Question 1: Which of the following is not needed for price discrimination to be possible?
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A. The firm must have market power. |
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B. The firm must be able to prevent resale and arbitrage. |
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C. The firm must eventually learn about its customers' demands. |
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D. The firm's customers must have different demand curves. |
Question 2: Relative to standard monopoly pricing, first-degree price discrimination results in:
| A. |
higher consumer surplus, higher producer surplus, and higher total surplus. |
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| B. |
lower consumer surplus, higher producer surplus, and higher total surplus. |
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| C. |
lower consumer surplus, higher producer surplus, and lower total surplus. |
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| D. |
lower consumer surplus, lower producer surplus, and lower total surplus. |
Question 3: Relative to perfect competition, first-degree price discrimination results in:
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A. higher consumer surplus, higher producer surplus, and higher total surplus. |
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B. lower consumer surplus, higher producer surplus, and equal total surplus. |
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C. lower consumer surplus, higher producer surplus, and equal total surplus. |
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D. lower consumer surplus, lower producer surplus, and lower total surplus. |
Question 4: If market demand is P = 100 - Q and the firm has a constant marginal cost of 20, then with first-degree price discrimination, the firm's producer surplus will be:
| A. |
$800. |
| B. |
$1,600. |
| C. |
$2,400. |
| D. |
$3,200. |
Question 5: For third-degree discrimination to be possible, which of the following features is not required?
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A. market power |
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B. prevention of resale |
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C. identification of each customer's demand before purchase |
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D. customers with different demand curves |
Question 6: A golf course has frequent players whose demand is Qf = 260 - 0.4P and infrequent players whose demand is Qi = 10 - 0.1P. The combined market demand is Q = 34 - 0.4P. The marginal cost and average total cost of providing a round of golf are $20. How much higher will the profit be if the golf course uses third-degree price discrimination instead of charging all golfers the same price?
| A. |
$0 |
| B. |
$7.50 |
| C. |
$10 |
| D. |
$110 |
Question 7: An airline sells seats on its flights to business travelers whose demand is QB = 300 - P and vacation travelers whose demand is QV = 150 - 0.5P. The combined market demand is Q = 450 - 1.5P. The marginal cost and average total cost of providing a seat on a flight are $200. How much higher will profit be if the airline uses third-degree price discrimination instead of charging all travelers the same price?
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$0 |
| B. |
$250 |
| C. |
$400 |
| D. |
$1,000 |
Question 8: If a firm practices third-degree price discrimination, the price charged should be higher in the market where demand is:
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Higher. |
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| B. |
Lower. |
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| C. |
More price elastic. |
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| D. |
Less price is elastic. |
Question 9: The key difference between markets where third-degree price discrimination is possible and markets where second-degree price discrimination is possible is whether:
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A. resale is possible. |
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B. customers have the same demand curves. |
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C. firms have market power. |
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D. firms can identify customers' demand before the customers make a purchase. |
Question 10: For price discrimination via a quantity discount to work:
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A. customers who purchase larger quantities must have relatively elastic demand. |
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B. customers who purchase larger quantities must have relatively inelastic demand. |
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C. customers who pay a relatively high price must have relatively elastic demand. |
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D. customers who pay a relatively low price must have relatively inelastic demand. |
Question 11: A firm wants to offer a quantity discount to price-discriminate between buyers who are relatively uninterested in the product and buyers who are obsessively interested in it. The uninterested customers have a demand of QU = 30 - 0.5P. The package offered to them contains 10 units of the good at a price of $40 each. Which of the following packages designed for obsessed customers is incentive compatible?
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60 units at a price of $10 each |
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| B. |
40 units at a price of $10 each |
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| C. |
60 units at a price of $20 each |
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| D. |
40 units at a price of $20 each |
Question 12: Which of the following conditions do not have to be met in order for indirect price discrimination by versioning to work?
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A.The firm's customers must have different demand curves. |
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B. The marginal costs of producing each version of the product must be the same. |
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C. The firm must be able to prevent resale. |
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D. The firm must have market power. |
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Willingness to pay (per month) |
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Weight machines |
Indoor pool |
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Abe |
$60 |
$50 |
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Betty |
50 |
125 |
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Chris |
25 |
140 |
QUESTION 13
This table shows the willingness to pay off the only three potential customers of a firm that runs both a weight room and an indoor swimming pool. The weight room and pool each have a constant marginal cost of $20 per month. Which of the following pricing strategies yields the highest producer surplus?
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A. $60 for the weight room, $140 for the pool, or $175 for both |
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B. $50 for the weight room, $125 for the pool, or $165 for both |
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C. $25 for the weight room, $50 for the pool, or $70 for both |
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D. $60 for the weight room, $130 for the pool, or $175 for both |
Question 14: Which of the following features is needed to make bundling a possible price discrimination strategy but is not required for any other price discrimination strategies?
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A. Customers must have identical demand curves. |
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B. The firm does not learn about customer demand until after purchase. |
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C. Demand for two products must be negatively correlated. |
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D. The firm must not have market power. |
Question 15: Which of the following features is not needed for price discrimination using a two-part tariff to work?
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A. The firm must have market power. |
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B. The firm must be able to prevent resale. |
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C. The firm must learn about its customers' demands before purchases are made. |
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D. The firm's customers must have different demand curves. |
Question 16: A firm faces a market demand curve P = 50 - 5Q. It has a constant marginal cost of $10. Relative to standard monopoly pricing, how would a block pricing strategy where the first four units can be purchased for a price of $30 each, but two more units can be purchased for an additional $20 each change consumer surplus and producer surplus?
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A. Consumer surplus would decrease by $10, and producer surplus would increase by $20. |
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B. Consumer surplus would increase by $10, and producer surplus would increase by $20. |
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C. Consumer surplus would increase by $20, and producer surplus would increase by $10. |
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D. Consumer surplus would increase by $20, and producer surplus would increase by $20. |
Question 17: Relative to standard monopoly pricing, block pricing:
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A. decreases consumer surplus, increases producer surplus, and increases total surplus. |
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B. increases consumer surplus, increases producer surplus, and increases total surplus. |
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C. decreases consumer surplus, increases producer surplus, and decreases total surplus. |
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D. decreases consumer surplus, decreases producer surplus, and decreases total surplus. |
Question 18: Which of the following results in the highest amount of producer surplus?
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bundling |
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| B. |
third-degree price discrimination |
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| C. |
block pricing |
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| D. |
two-part tariffs |
Question 19: Which of the following results in the highest amount of consumer surplus?
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first-degree price discrimination |
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| B. |
third-degree price discrimination |
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| C. |
block pricing |
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| D. |
two-part tariffs |
Question 20: Which of the following results in the highest amount of total surplus?
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third-degree price discrimination |
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| B. |
block pricing |
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| C. |
first-degree price discrimination |
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| D. |
bundling |
