EP333.M3 PART III

1. Explain how a price based on a markup is reached at. Discuss a market price may be adjusted by considering the strength of demand in the market.

2. Develop the concept of consumer surplus and explain the first and the second degree price discriminations applying the concept of consumer surplus.

3. State the assumptions for the price discrimination of the third degree. What criterion does a firm use in distributing its product to the sub-markets? Explain how the elasticities and the prices are related.

4. Explain how the prices are set for joint products, starting with the derivation of a combined revenue curve. Then use the mathematical model to set the prices for joint products.

5. Discuss on the assumptions behind the price rigidity case, using the concept of “conjectural variations”.. Why price is rigid for some industries for a prolonged period?

6. Explain the relation among the standard deviation, risks involved, risk premium, risk adjusted discount rate and the present value of a project.

7. The data for profit outcome and its probabilities are given below:

P 1 2 3 4 5

Pr 0.1 0.2 0.4 0.2 0.1

a. Find the expected value. b. Find the variance. (Pb=3, s²=1.20)

c. Find the standard deviation (s=1.095)

8. Assume P=$6, AFC=$8, AVC=$4 and Q=100. Calculate TR, TC and P. Can you show the figures in a diagram? (TR=600, TC=1200, P=-600)

9. In the model of price leadership, what assumptions are made regarding the model? Who sets the price for the industry and how is it set? How are the quantities for the small firms and for the dominant firm determined?

10. Write a short essay on the principle of the cost-benefit analysis and how the principle is applied in assessing a public project. What are market values and non-marketed benefits and costs?