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In Chapter 8, you read about McDonald’s decision to create the brand McCafé. In this discussion, you will answer two questions. Why did McDonalds enter the market in light of the presence of major firms such as Starbucks and Dunkin’ Donuts? Do you think this was a good economic decision? Please incorporate material from Chapter 8 in your response.1

Title: Pricing Strategies for Firms with
Market Power

Contents

Introduction ……………………………………………………………………………………………………………….. 3

Check Your Understanding ………………………………………………………………………………………….. 3

Question 1 ………………………………………………………………………………………………………………………………. 3

Question 2 ………………………………………………………………………………………………………………………………. 3

Simple Pricing Rule for Monopoly and Monopolistic Competition ……………………………………….. 3

Simple Pricing Rule for Cournot Oligopoly ……………………………………………………………………… 4

Check Your Understanding ………………………………………………………………………………………….. 4

Question 3 ………………………………………………………………………………………………………………………………. 4

Question 4 ………………………………………………………………………………………………………………………………. 5

Strategies that Yield Greater Profits ………………………………………………………………………………. 5

Price Discrimination …………………………………………………………………………………………………………………. 5

Two-Part Pricing ………………………………………………………………………………………………………………………. 5

Block Pricing …………………………………………………………………………………………………………………………… 5

Commodity Bundling ………………………………………………………………………………………………………………… 6

Check Your Understanding ………………………………………………………………………………………….. 6

Question 5 ………………………………………………………………………………………………………………………………. 6

Question 6 ………………………………………………………………………………………………………………………………. 6

Pricing for Special Cost and Demand Structures ……………………………………………………………… 6

Peak-load Pricing …………………………………………………………………………………………………………………….. 6

Cross-subsidy pricing …………………………………………………………………………………………….1

Title: Managing in Competitive,
Monopolistic, and Monopolistically
Competitive Markets

Contents
Perfect Competition………………………………………………………………………………………………………3

Pricing in Perfect Competition ………………………………………………………………………………………..3

Short-Run Output Decisions in Perfect Competition …………………………………………………………..3

Minimizing Losses in Perfect Competition ………………………………………………………………………..4

Long-Run Output Decisions in Perfect Competition……………………………………………………………4

Check Your Understanding ……………………………………………………………………………………………5

Question 1 …………………………………………………………………………………………………………………………. 5

Question 2 …………………………………………………………………………………………………………………………. 5

Monopoly ……………………………………………………………………………………………………………………5

Sources of Monopoly Power ………………………………………………………………………………………….5

Economies of Scale …………………………………………………………………………………………………………….. 5

Economies of Scope ……………………………………………………………………………………………………………. 6

Cost Complementarity …………………………………………………………………………………………………………. 6

Patent and Legal Protections ………………………………………………………………………………………………… 6

Maximizing Profits in Monopoly ………………………………………………………………………………………6

Barriers to Entry in Monopoly …………………………………………………………………………………………6

Check Your Understanding ……………………………………………………………………………………………6

Question 3 …………………………………………………………………………………………………………………………. 6

Question 4 …………………………………………………………………………………………………………………………. 7

Monopolistic Competition ………………………………………………………………………………………………7

Implications of Cost Differentiation ………………………………………

  
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