module 12

Michelle owns an independent bookstore and has observed that college graduates read more than people without degrees. She is considering offering a 10% discount on book purchases to customers who have a postsecondary degree. Why might Michelle's plan hurt rather than help her business

- people with higher education typically earn more and don't need a discount - whether an individual has a postsecondary degree is not easily verifiable - people who read more books are likely to have a higher willingness to pay than others

c. Suppose instead that most firms in this market are experiencing negative economic profits. Move the demand curve on the graph to illustrate the impact on your firm. Demand

demand curve goes up. increases market power

a. Consider how your firm will be impacted by rival firms entering the market. Move the demand curve on the graph to illustrate the impact on your firm. Price ($)QuantityDemand

demand will go down new firms entering market reduces market power

lower willingness to pay invites more

discounts

As a result of rival firms entering the market, your annual revenue becomes $300,000 and your annual out-of-pocket expenses become $270,000.

economic profit cannot be determined accounting profit is $30,000

In 2018, Spotify was available in many countries around the world. The same year, Spotify offered an attractive deal available only to students—Spotify Premium, Hulu Limited, and Showtime, all for one monthly payment of $4.99. The fee is half the amount charged for a standard Spotify Premium account. To qualify for the deal, students must provide their information, such as name and birthdate, to Spotify and its third-party partner, SheerID. SheerID is a verification service utilized by companies to confirm various personal attributes and qualifications. In this case, your current student status at a Title IX school is in a database, which is accessed by SheerID. in making this offer to students, Spotify is

engaging in group pricing, where the market segments are students and nonstudents using the hurdle method, getting people to self-identify their willingness to pay by requiring them to overcome one or more obstacles

demand side strategy

goods and services drive economics

how to know if firm is making negative profit

if d or mr is below atc

how to know if firm is making zero profit

if d or mr is equal to atc or mc and intersects with both the graphs

how to know if a firm is making a profit

if the market price is higher than average total cost, there is a profit

patents give

investors exclusive rights to sell a product for a specific period of time

copyrights are

legal protections that protect a product from being copied by others for a specific period of time

Suppose that the market for pizzas in your town is perfectly (or purely) competitive, with a market price of $16 per pizza in long run equilibrium. A local pizza restaurant, Pizzazzy, signs a one‑year lease in a new building in town and continues selling pizzas at this price. People in your town view Pizzazzy pizzas as the same as other pizzas. Suppose that a couple of months after the new pizza restaurant opens, the local government institutes a $12 per pizza price ceiling. If you buy a $12 pizza from Pizzazzy a week later (and assuming Pizzazzy is behaving rationally), what do you know about the marginal cost, average total cost, and average variable cost at the profit maximizing point of production after the price ceiling is imposed?

marginal cost: no higher than $12 average total cost: higher than $16 average variable cost: no higher than $12

under perfect price discrimination, sellers benefit, because they can thereby sell their product at maximum prices. buyers also benefit because

perfect price discrimination enables some consumers to purchase items that they otherwise could not purchase

in the short run, perfectly competitive firms can earn a

positive profit

You've been browsing some new styles on Old Navy's website, where you often shop, and have filled your virtual cart with a few nice items. But you leave the site without completing your purchase. A few days later, Old Navy sends you an e-mail with a 10%10% discount code to apply to your cart, within a limited time frame. Why do companies like Old Navy send specialized offers like this one? Old Navy is engaging in

price discrimination

if firms exit market, the price

rises

perfect price discrimination leads to socially efficient

the socially efficient market output

Perfect price discrimination is mostly hypothetical. However, as data mining becomes more ubiquitous, we can expect markets to increasingly resemble perfect price discrimination, because

they will have more information about individual consumers' preferences

companies do not charge everyone their reservation price because

willingness to pay is private information that people have an incentive to keep hidden

in the long run, a firm in a perfectly competitive industry makes

zero profit

Duolingo is a widely used foreign language app, with over 500 million users. While there is a free version of the app, a premium Duolingo subscription eliminates advertisements during language practice and offers new quizzes with the ability to save lessons for offline use. a. identify each hurdle for users of the free version of the app b. by offering a free and premium version of the app, Duolingo

a. identify each hurdle for users of the free version of the app the absence of enhanced features—new quizzes and the ability to save lessons for offline use—enjoyed by users of the premium version the advertisements that users of the free version must endure b. By offering both a free and a premium version of the app, Duolingo profits more than it would if it offered just one version of the app.

most stores offer rotating promotions that provide discounts on various products. However, at many of them, you must become a rewards member to take advantage of the deals. The price of the membership is free. you are probably familiar with this process at grocery stores, pharmacies, and even pet supply chains. a. Identify each hurdle that shoppers must typically clear to obtain these promotional deals. b. Rewards membership offerings benefit stores by enabling them to

a. identify shoppers must typically clear to obtain these promotional deals divulging personal information, such as one's age and e-mail address remembering to bring the discount card, to the store or providing the clerk with your phone number taking time to fill out a form b. reward membership offerings benefit stores by enabling them make sales they would not otherwise make track data, such as buying habits, on their customers

deterrence strategy

charging a lower price than others