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Price discrimination

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3. SAR Publisher is a monopolist in publishing a textbook on Hong Kong economy. Besides the Hong Kong market, SAR Publisher also sells this textbook in the US. Suppose SAR Publisher can produce this textbook at a constant marginal cost of $20 per copy and the demand curves for the two markets are given by:
QUS = 48, 000 - 600PUS;
QHK = 42, 000 - 300PHK,
where all prices are in expressed US dollars.
(a) What conditions must be satisfied for SAR Publisher to practice price
discrimination between the two markets?
(b) Assume that the conditions you described in part (a) are satisfied. What
price will SAR Publisher charge its textbook in each market, assuming
there is no shipping cost?

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3. SAR Publisher is a monopolist in publishing a textbook on Hong Kong economy. Besides the Hong Kong market, SAR Publisher also sells this textbook in the
US. Suppose SAR Publisher can produce this textbook at a constant marginal cost of $20 per copy and the demand curves for the two markets are given by:
QUS = 48, 000 - 600PUS;
QHK = 42, 000 - 300PHK,
where all prices ...

Solution Summary

Price discrimination is contextualized. A monopolist in publishing a textbook on Hong Kong economy is determined.

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1) Price discrimination is often defended on the basis of equity (Charge less for the poor than the rich!). Is this the only rationale for price discrimination?

2) If a market price is determined by a dominant price leader, what happens to the price (gets higher or lower) if the number of the followers increase? (First review Figure 11.2 on page 504.)

(See attached diagram).

3) What is transfer pricing? Give an example.

4) Discuss the social welfare implications of price discrimination

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