Question

1. When a firm’s ATC of production increases as it increases production, this firm is said to be experiencing:

A) diseconomies of scale. B) economic profit. C) economies of scale. D) a barrier to entry.

2. Suppose you represent the student government on campus. What sort of profitable price discrimination

practices can you engage in on the following services? Be specific and use different techniques for each

part.

A) Parking spaces

B) Theater productions

C) Sports events

Answer 1

2.

A: parking charge or fee is not so high usually and there is the minimum or no recurring cost maintaining the parking space. Therefore, there should not be any fixed parking fee. The fee may depend upon the maximum willingness to pay by each customer; suppose a businessman wants to pay $150, but his worker want to pay $15; both these prices should be considered respectively. This is 1st degree price discrimination.

B: this is an entertainment production where different groups of customers become audience for watching the same theatre. These groups are charged differently based on their comforts and affordability (like front row ticket, balcony ticket, box ticket, etc.). Therefore, suppose a balcony ticket is priced more than a front row ticket. This is called 3rd degree price discrimination.

C: there should be a bulk discount if season tickets are purchased, or life membership is taken. Therefore, there would be different prices for each unit of sports – normal ticket of each game, season ticket, and life membership ticket. This is 2nd degree price discrimination.