Suppose a monopolist faces two market segments, domestic and overseas, and has a constant
marginal cost of $5 in each market segment (assume there are no fixed costs). The demand curve
for domestic segment is Q1 = 30 – P1. The demand curve for overseas segment is Q2 = 110 – P2.
In each equation, Q denote the quantity demanded and P denotes the price per unit of output.
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a) Assume that it is illegal for the firm to price discriminate, so that it can charge only a single
price on both markets. What price will it charge, and what profits will it earn?
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b) Suppose the firm can engage in third-degree price discrimination, what price should it set on
each market segment to maximize its profit? What profits will it earn?
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c) Suppose now that the firm can engage in perfect first-degree price discrimination. How large
will the producer surplus be? Is there a deadweight loss with first-degree price discrimination?
Compare this deadweight loss with the ones in part (a) and (b).
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d) Now suppose that this firm faces the aggregate market demand Q = 140 – 2P, and it can
engage in second-price discrimination. More specifically, it charges $50 for the first 40 units,
then $30 for any additional unit. Calculate producer surplus, consumer surplus, and deadweight
loss.
Answers
Status NEW
Posted 05 Jun 2017 07:06 AM
My Price 7.00
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