Answer:

a) If the contingency fee is 1/3 rd , the surplus to the lawyer is given by

The first order condition for the above function is

Hence, the surplus maximizing effort for the lawyer is

The lawyer's surplus then is

The plaintiff's surplus then is

b) If the contingency fee is c , the surplus to the lawyer is given by

The first order condition for the above function is

Hence, the surplus maximizing effort for the lawyer is

The lawyer's surplus then is

The plaintiff's surplus then is

c) The plaintiff's surplus is

The first order condition for the above function is

Hence, the surplus maximizing contingency fee for the plaintiff is

The plaintiff's surplus then is

If contingency fees is

, surplus maximizing effort for the lawyer is

The lawyer's surplus then is

d) If the plaintiff can sell the case to her lawyer she can extract the whole surplus of the lawyer and increase her surplus. This can be done by setting a 100% contingency fee. The lawyer will then choose l = 1 and earn a surplus ½. The plaintiff can then sell the case for ½ and extract his surplus.

As this scheme does not leave the lawyer with any surplus it is outlawed in many countries.

Answer:

If instead of two tariffs, the coffee shop charges price p per ounce of coffee, then the

the utility function of a consumer is given by

The first order condition for the above yields

So, the inverse demand function of consumer is given by

As

, we get

Putting this in the inverse demand function, we get

So,

The expected profit of the coffee shop is given by

Substituting the demand function for the two types of demanders, we get

The first order condition for this is

Re arranging the above we get,

Solving for p, we get,

The expected profit of the shop is given by

If instead the firm sets non-linear price, the expected profit is found to be 50. Hence, non-linear price is a better strategy.

Answer:

a) We know that to maximize the monopolists' expected profit

As

, we get

Substituting the values, we get

The tariff for the low type is given by

The optimal quantity and tariff for high demander remains unchanged at 16 and 160 respectively.

Only the quantity and tariff of the low type is affected, that of the high type remains unaffected. This shows that there is "no distortion at the top".

There is no answer for this question

There is no answer for this question