Question

Suppose buyers in the high-price market find a way to purchase a good in the lower price market. The firm can no longer separate the two markets. It must, therefore, charge a single price to all buyers. The firm's total fixed cost (TFC) is $110. Find the profit-maximizing price and quantity.

Demand 1

Q	P	revenue	MR	elasticity
0	12	0	12
1	10	10	8	-5
2	8	16	4	-2
3	6	18	0	-1
4	4	16	-4	-0.5
5	2	10	-8	-0.2
6	0	0	-12	0
7	-2	-14	-16	0.142857

Demand 2

Q	P	revenue	MR	elasticity
0	28	0	28
1	26	26	24	-13
2	24	48	20	-6
3	22	66	16	-3.66667
4	20	80	12	-2.5
5	18	90	8	-1.8
6	16	96	4	-1.33333
7	14	98	0	-1
8	12	96	-4	-0.75
9	10	90	-8	-0.55556
10	8	80	-12	-0.4
11	6	66	-16	-0.27273
12	4	48	-20	-0.16667
13	2	26	-24	-0.07692
14	0	0	-28	0
15	-2	-30	-32	0.066667

Single market

P	sumQ	revenue
0	20	0
2	18	36
4	16	64
6	14	84
8	12	96
10	10	100
12	8	96
14	7	98
16	6	96
18	5	90
20	4	80
22	3	66
24	2	48
26	1	26
28	0	0

A) Will the firm produce coins? Why or why not?

(I tried filling out most of this table already)

	Separate markets		Single market
	Demand 1	Demand 2
Optimal P	6	14	10
Quantity sold	3	7	10
Revenue	18	98	100
Will the firm “produce” coins?	?	?	?

B) Draw a graph that shows consumer surplus in the separated markets

C) Why is consumer surplus relevant to understanding the impact of price discrimination on the buyers in the high price market?

Answer 1

yes , the firm will produce coins as total profits is positive. (98+18 - 110) = 6>0

b)

c.s in market 1= 1/2* (12 - 6) * 3 = 9

c.s in market 2 = 1/2*(28 - 14) * 7 = 49

c) Consumer surplus captures the effect of willingness of a consumer and price , higher the price less will be consumer surplus left for given qty and more will be the producer surplus. It reflects the well being of agents in the economy.