Managerial EconomicsHOMEWORK SET#5Name:Class:Student #: (Due day: Next class)Part 1:1. Discrimination based upon the quantity consumed is referred to as _ price discrimination.a. first-degreeb. second degreec. third-degreed. groupChoose: b)2. Club Med, which runs a number of vacation resorts, offers vacation packages at a lower price in the winter, the off season, than in the summer. This practice is an example of:a. peak-load pricing.b. intertemporal price discrimination.c. two-part tariff.d. bundling.e. both (a) and (b) are correct.Choose: e)3. Bundling raises higher revenues than selling the goods separately whena. demands for two goods are highly positively correlated.b. demands for two products are mildly positively correlated.c. demands for two products are negatively correlated.d. there is a perfect positive correlation between the demands for two goods.e. the goods are complementary in nature.Choose: c)4. Two-part tariffs are:a. a form of bundling.b. profit-enhancing if consumers have different demand curves.c. inefficient if all consumers are idential.d. an uncommon price strategy.e. None of the above is correct.Choose: b) Although not all surplus can be extracted when consumerss demand differs, two part tariffs may still be profitable. Two-part tariffs can be just as efficient as perfect competition if consumers are identical snd price is set at marginal cost(therefore, choice c) is wrong). Choice d) is certainly not true-separating prices into two components, an entry fee and a usage fee, is quite common. Example are country club pricing or fitness club pricing (an initial membership fee and monthly fees as well) and utility bills (a charge for being connected and a separate charge for ueage.)The next four questiones refer to the Zwift Corporation, which has a monopoly in the Zouvenier market in Zuburbia. Zwift has a constant average variable cost of $5 per unit and no fixed costs. It faces the demand curve P=85-2Q, where P is measured in dollars.5. Zwift should produce an output of:a. 42.5 units.b. 40 units.c. 20 units.d. 10 units.e. None of the above is correct.Choose: c) MR=85-4Q. At MR=MC, 85-4Q=5,or Q*=20.6. It should charge a price per unit of:a. $45.b. $5.c. $85.d. $10.e. None of the above is correct.Choose: a) At Q*=20, P*=85-2(20)=$45.7. At the profit-maximizing output, it will earn profits of:a. $1,700.b. $1,600.c. $800.d. $400.e. None of the above is correct.Choose: c) With zero fixed costs, ATC=AVC, and profit equals TR-TC=45(20)-5(20)=$800.8. The deadweight loss from Zwifts monopoly is:a. $400.b. $800.c. $900.d. $1,600.e. $1,806.25.Choose: a) The competitive price and output would be P*=MC=5 and therefore 5=85-2Q or Q*=40. Deadweight loss is then the area of the triangle bordered by the competitive and monopoly outcome: 0.5(40-20)(45-5)=$400.The next two questions use the following data: Forty thousand potential customers of a cable TV franchise are each willing to pay $6/month for HBO and $6/month for Cinemax. Twenty thousand potential customers are each willing to pay $10/month for HBO and only $3/month for Cinemax. Assume costs are zero.9. If the two services are sold separately, the franchise should charge ( ) for HBO and ( ) for Cinemax.a. $10 and $6b. $6 and $6c. $6 and $10d. $6 and $3e. $10 and $3Choose: b) The cable franchise would earn revenues of $6(40,000)+6(20,000)=$360,000 if it set PHBO=$6. It would earn revenues of 10(20,000)=$200,000 if PHBO=$10. Therefore, the cable franchise should set PHBO=$6.10. If the franchise sells the two services in a bundle, it should charge:a. $16.b. $13.c. $12.d. $10.e. $9.Choose: c) If the cable company charges a bundle price of $12 then revenue is (40,000+20,000)12=$720,000. If the bundle price were $13, revenues would be 13(20,000)=$260,000. Note that bundling induces all customers to buy both services. Even though the total price($12) is the same as in Question 7, bundling is more profitable.11. Comparing first-degree price discrimination to perfect competition one can conclude that:a. total surplus is higher under competition.b. total surplus is lower under competition.c. producer surplus is lower and consumer surplus is higher under competition.d. marginal revenue is equal to price under competition, but not under first-degree price discrimination.e. deadweight loss is lower under competition.Choose: c) First-degree price discrimination uses different packaging or distribution methods for its generic cigarettes, the price difference may partially reflect a cost difference. Volume discounts are often cost-justified, if there are economies of scale, as well as saving in planning and shipping. There could clearly be additional costs of customizing a produc