Economics Assignment - Microeconomics, Price Discrimination, Monopoly

Running head: ECONOMICS ASSIGNMENT
Economics assignment
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ECONOMICS ASSIGNMENT
Part 1
Answer 1)
A. When the firms will be cooperating , they would be choosing to produce opposite types of
cereal and end up in either the upper right or lower left quadrant. The firms will not be moving
to the other two quadrants, producing the same cereal type, because both would be losing
money by doing so
B. From the above pay off matrix it can be said that none of the firms have dominant strategy
and therefore it resulted in the nash equilibrium. The nash equilibrium here will be crispy,
sweet since there is no particular dominant strategy for the each firm.
C. In this game when frim 2 will be producing crispy, firm 1 will produce crispy and when
firm 2 is producing sweet, firm 1 will still produce crispy as ( 15>10). Therefore crispy is the
firm 1 ‘s dominant strategy. On the other hand when
Ans2)
a. Price discrimination is a pricing strategy where similar goods or the services are
transacted at different prices by the same provider in different markets.
i) In this case the cement firm wants to deliver cement to the buyer. However, it
wants to know the location of the buyer for delivering the cement( Iossa and
Martimort 2015). The reason for knowing the location of the buyer is that, the
cement provider would be charging according to location of the buyer. He would
be charging more if the buyer is rich and less if the location of the buyer at a well
established place. This a method of price discrimination.

ECONOMICS ASSIGNMENT
ii) Here also the airline company implies price discrimination in a way that only
that particular named customer would be provided with the opportunities of
flying at a discounted rate (Cowell 2018). This is also an example of price
discrimination where the named person will be allowed to fly at the cheap rate
compared to the other people. This can be also termed as the third degree price
discrimination.
iii) Peak load pricing is a kind of pricing strategy where goods will be charged at the
high price during the peak period and will be charging low price at the other time
period. Therefore this can be termed as the second degree price discrimination
where prices are charged differently at different point of time. It is also known as
the intertemporal price discrimination which is based on efficiency.
b) In case of monopoly, the single seller sells a product and is known as the price
maker. The monopolist often charges different prices from different consumers for the same
product. This practice of charging the price for the same product is known as the price
discrimination. On the other hand the second priced monopoly is a kind of firm who sells
each unit of the output for the same price to different consumers (Cowell 2018). Therefore, it
can be said the one price monopolist will be charging only single price o=while the one who
practices price discrimination will be chagrining different price.
The seller who practices price discrimination will be enjoying an extra revenue because he
will be charging more price at the peak time compared to the other period of time. By selling
the quantity at different prices he will be earning higher revenue and profit compared to when
he charges uniform price.