Question

Suppose that you own a bakery that sells cookies. Each cookie has a marginal and average cost of $1, there are no fixed costs. You notice that all of your customers have the same demand curve for cookies given by p=5 - Q Compute the optimal single price to charge for cookies. How many cookies does each customer purchase? How much profit does your bakery make per customer? What is the consumer surplus at the price and quantity you found in (a)? What is the deadweight loss? Suppose you can perfectly price discriminate - meaning you can charge the exact marginal value on each cookie sold. How many cookies do you sell to each customer? What is your profit per cus- tomer? What is the consumer surplus and deadweight loss in this case? In order to price discriminate, you could use a two-part tariff, mean- ing you charge an entry or membership fee and then charge an addi- tional price per cookie. What price and entry fee would you charge to achieve the perfect-price discrimination outcome? Instead of a two-part tariff, suppose the firm uses block pricing. What quantity and total price will it sell? (A block price is when a specified quantity is sold for a total price, such as the supermarket selling a dozen (12) eggs for $3 rather than selling each egg individ- ually).

Answer 1

P 5-8 TR = (5-3-9) 2 101-9 1 3 3 58- MA 2 5- M C 12 5-26 1 5-28- 3 12 =28 MR AA 5-44 P= 12 X 5-2 3 0.5 X12 P MC 2 Cookie woula. be lol ut 5-6 1 5-=3 12 Produes gc all the pnfils. onvertd ivnto thu hoduus Bousus furths dend w eighet less Swrplus Dntit par un?. psi0.5(5-9(7) 2 6.50409 20.5 X48 12

Col hwo bat daft alto prluy Sane MC 5-48 15-8 12 P 1 Membrs Fue, 0-5 x 48