MicroL20 Essay Example | Topics and Well Written Essays - 1250 words

MicroL20 - Essay Example b. An example of a good with a positive externality is occupied housing. Certainly, the individuals housed benefit from shelter, security, and an ability to organize their lives and families in a way that would not likely be feasible if they were homeless. Owners enjoy rents (implicit if the property is owner-occupied) on the home. These are primarily private benefits. Occupied housing tends to be better maintained, improving neighborhood property values) over the long term and neighborhoods with higher occupancy rates tend to have lower crime rates. Both of these are primarily public benefits. An example of a good with a negative externality is a car with an extremely loud stereo system. While the audiophile-owner may enjoy the experience (a private benefit), those who are forced to experience the sound against their will are faced with a nuisance (a public cost). 2. Monopolies. a. If Bart charges $15, then he sells a meal for a total profit of $10. If he charges $8, he'll sell two meals for a total profit of $6. If he charges $7, he'll sell three meals at a total profit of $6. It's in Bart's best interest to charge $15.00 and sell a single meal. The producer surplus in this case is $10 and there is no consumer surplus. b. Without advanced knowledge of who would be willing to pay which price, it would be difficult for him to price discriminate, but there are some strategies he might pursue. One is to institute â€Å"haggling.† If every transaction is negotiated, it is possible that those willing to pay a higher price might be persuaded to part with more cash for the same meal than a less well-funded customer (though this increases transaction costs). It might also be possible for Bart to create categories of customers, through some sort of discounting mechanism, which would make it more likely that those willing to pay more would spend more. He might create three cosmetically different, though essentially similar, meals (though this pushes the boundarie s of the premise, since the meals would no longer be the same). Ideally, he would be able to sell three meals, one each for $15, $8 and $7. In reality, with imperfect information, he'd likely not do this well. c. Bart would be able to sell three meals, one each for $15, $8 and $7. The producer surplus will be $15 and there will be no consumer surplus. d. If all three meals were purchased by one person, it would be difficult for Brad to price discriminate, except, perhaps, by the use of discount cards or some similar device that needed to be presented upon ordering or paying. Assuming he could not price discriminate and the consumers presented a united, three meals or nothing front, we would expect three meals sold at $7 each. e. If there were another restaurant in town, it would be much more difficult for Bart to price discriminate. He would need to depend on factors such as market friction, customer loyalty or location preference (i.e., Bart's restaurant is easier to get to) or col lusion with his competitor to maintain some degree of monopoly power if he wanted to continue to price discriminate. As the number of competitors increased the situation would increasingly resemble a perfect competition model and Bart would become a price taker. f. It would be very difficult to effectively price discriminate