Microeconomics (ECO 520) Case Study Two: Pricing Coins Analysis

This document presents a microeconomics case study focused on pricing coins, likely for an ECO 520 course. It includes calculations and analysis of revenue, marginal revenue, and elasticity under different pricing scenarios. The case study involves a firm, TreasureHunters' International, Inc. (THI), and explores how they can maximize revenue and profit. The solution provides calculations for various quantities and prices, determining revenue maximization points and elasticity values. It analyzes both separated and single markets, comparing optimal prices and quantities. The analysis also examines the concept of consumer surplus and how price discrimination can affect it. The author provides tables, calculations, and diagrams to illustrate the concepts and analysis of the case study.

Running head: MICROECONOMICS
Microeconomics
Name of the Student
Name of the University
Course ID

1MICROECONOMICS
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................3
Answer 3....................................................................................................................................5
Answer 4....................................................................................................................................5
Answer 5....................................................................................................................................6
References..................................................................................................................................8

2MICROECONOMICS
Answer 1
Quantity (Q) Price (P) Revenue (R) Marginal
Revenue
(MR)
Point Elasticity
( e)
0 12 0 12
1 10 10 8 -5
2 8 16 4 -2
3 6 18 0 -1
4 4 16 -4 -0.5
5 2 10 -8 -0.2
6 0 0 -12 0
7 -2 -14 -16 0.142857143
1 2 3 4 5 6 7 8
-17
-16
-15
-14
-13
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Revenue - Marginal Revenue - Point Elasticity
Revenue (R) Marginal Revenue (MR) Point Elasticity ( e)

3MICROECONOMICS
Quantity at which each event occurs
Revenue is maximized 3
Elasticity = -1 3
Marginal revenue = 0 3
Answer 2
Quantity
(Q)
Price
(P)
Revenue ( R) Marginal
Revenue(MR)
Elasticity
( e)
0 28 0 28
1 26 26 24 -13
2 24 48 20 -6
3 22 66 16 -
3.666666667
4 20 80 12 -2.5
5 18 90 8 -1.8
6 16 96 4 -
1.333333333
7 14 98 0 -1
8 12 96 -4 -0.75
9 10 90 -8 -
0.555555556
10 8 80 -12 -0.4
11 6 66 -16 -
0.272727273
12 4 48 -20 -
0.166666667
13 2 26 -24 -
0.076923077
14 0 0 -28 0
15 -2 -30 -32 0.066666667

4MICROECONOMICS
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
-33
-30
-27
-24
-21
-18
-15
-12
-9
-6
-3
0
3
6
9
12
15
18
21
24
27
30
33
36
39
42
45
48
51
54
57
60
63
66
69
72
75
78
81
84
87
90
93
96
99
Revenue - Marginal Revenue - Elasticity
Revenue ( R) Marginal Revenue(MR) Elasticity ( e)

5MICROECONOMICS
Quantity at which each event occurs
Revenue is maximized 7
Elasticity = -1 7
Marginal revenue = 0 7
Answer 3
The total revenue earned from both the markets is $116 and is greater than the cost of
bringing coins to the surface and thus the firm will bring the coins to the surface for selling.
Answer 4
Price (P) Quantity (Q) Revenue ( R)
0 20 0
2 18 36
4 16 64
6 14 84
8 12 96
10 10 100
12 8 96
14 7 98
16 6 96
18 5 90
20 4 80
22 3 66
24 2 48
26 1 26
28 0 0
Separated Market Single Market
Demand 1 Demand 2
Optimal P 6 14 10
Quantity Sold 3 7 10
Revenue 18 98 100
Will the “firm”
produce coins
Yes Yes No

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Answer 5
Figure 1: Separated Market
Source: (Created by the Author)
In separated market, the firm charges the two separate price for two markets. For
market 1 the price charged by the firm is 6 and is shown as Pc in the above diagram and it is
the perfectly competitive price and thus the consumer surplus is given by the yellow triangle
(Lam & Liu. 2017). On the other hand, price for market 2 is incremental price and the
maximum price is 14, which is given in the diagram as Pmax. In the second market, the
producer appropriates the complete consumer surplus and thus there is no consumer surplus
in market 2 because the firm is successful to charge reservation price of the consumer. The
reservation price is the maximum price a consumer is willing to pay for a product.

7MICROECONOMICS
To understand the impact of price discrimination it is important to understand the
concept of consumer surplus as well. A producer or seller to maximize its profit by charging
different prices in different market and maximizes revenue and thereby profit does the price
discrimination. The main objective of price discrimination is to appropriate the maximum
possible surplus from the consumer (Bergemann, Brooks & Morris, 2015). Thus, consumer
surplus is completely relevant with price discrimination. The appropriation of consumer
surplus is done mainly in the high price market as the producer appropriates the consumer
surplus by charging reservation price for each of its customer. Thus to understand the impact
of price discrimination in high price market understanding of consumer surplus is required.

8MICROECONOMICS
References
Bergemann, D., Brooks, B., & Morris, S. (2015). The limits of price
discrimination. American Economic Review, 105(3), 921-57.
Lam, C. T., & Liu, M. (2017). Demand and consumer surplus in