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DragoxCM16 DragoxCM16
wrote...
Posts: 359
A week ago

Question 1.

Assume a firm is able to use an optimal two-part tariff.

a.

Is the outcome economically efficient? Why or why not?

b.

What happens to consumer surplus?

c.

Does this represent perfect price discrimination? Why or why not?


Question 2.

Firms engage in odd pricing when they charge prices that appear to be less than they really are; for example, charging a price of $4.95 instead of $5.00 and $.99 instead of $1.00. How have researchers tried to determine whether odd pricing is successful in convincing consumers that odd prices are less than they really are?

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InMicro


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brigettelearnbrigettelearn
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Posts: 285
A week ago
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Answer 1

a.

If a firm uses an optimal two-part tariff, the outcome is economically efficient because price
equals marginal cost at the level of output supplied.

b.

With an optimal two-part tariff, all consumer surplus is transformed into profit.

c.

With an optimal two-part tariff, the quantity supplied increases and there is no consumer
surplus, so this represents perfect price discrimination.

Answer 2

Three researchers used surveys to answer this question. Survey results are inferior to actual purchasing behavior because surveys only determine what respondents state they will do and not what they actually do. Still, the surveys revealed that odd pricing may succeed in creating their intended illusion. The researchers asked survey respondents about their willingness to purchase six different products at a series of prices. Ten prices were odd prices. Out of the ten odd prices nine resulted in a quantity demanded that was greater than had been predicted using an estimated demand curve. This is evidence that charging odd prices makes sense for firms.

This verified answer contains over 290 words.
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