1. suppose seven individuals enjoy going to the comedy club. Their demand is as follows.

PersonWillingness to pay

Allison 20

Beatrice 18

Cally  16

David  14

Ezekiel 12

Francesca 10

Gertrude  8
Suppose the comedy club had a monopoly and a marginal cost of \$7 per entrant. Suppose the club could perfectly price-discriminate. That is, it could charge each customer a different price equal to his or her maximum willingness to pay. How many tickets would the comedy club sell?

2

The figure below shows the market for one hour of economics tutoring at your college. Imagine that the market for economics tutoring could be perfectly competitive, controlled by a monopolist who charges a single price or a monopolist who charges each customer a different price. Use the information in the diagram to answer the questions below.

## Part 1   (0.3 point)

See HintHow much is total surplus if the market is perfectly competitive?
\$

## Part 2   (0.3 point)

See HintHow much is total surplus if the market is controlled by a single-price monopolist?
\$

## Part 3   (0.3 point)

See HintSuppose the single-price monopolist started charging all customers the maximum price they are willing to pay. How much additional surplus is created?
\$

3. A diner has no competition when it comes to its famous Reuben sandwich combo plate, for which the graph shows the diner’s demand (D), marginal cost (MC), and marginal revenue (MR) curves. The price of \$20 is based on the MR = MC rule for profit maximization. The rectangular region shown represents the net revenue from sales of the sandwich (total revenue from Reuben combo sales minus total variable costs associated with Reuben combo sales).

Now, suppose the diner decides to raise the price during the lunch hour, which accounts for 60% of Reuben combo sales, knowing that its lunch-hour patrons are the most loyal buyers of the Reuben combo and also that they are locked into the lunchtime slot by their work schedules. The diner raises the price just enough not to lose any lunch-hour buyers. Use the area tool to outline the region representing the resulting additional net revenue from the price increase. Your answer should be a rectangle drawn with four corners.

SEE ATTACHMENT SCREENSHOT2017 FOR GRAPH

## Part 2   (0.7 point)

See HintAs a result of the revised price structure, the diner’s net revenue from Reuben-combo sales goes from   \$   to  \$  per day.

4. For a firm that is a price maker for its product, the graph shows the demand (D) and marginal revenue (MR) curves, as well as the marginal cost curve (MC), which is also the average variable cost (AVC) curve.

The graph also shows the net revenue (total revenue from product sales, minus total variable costs) when the profit-maximizing rule MR = MC is applied.

Finally, the graph shows two price points the firm is considering for a price-discrimination plan. If the firm is able to carry out this plan, getting the higher price from all those willing to pay it and the lower price from those who are not, outline the region representing the resulting net revenue. Use the area tool to draw the new net revenue region on top of the old one. Your answer should be drawn with six corners.