Question

6. Calculate (a) the monopoly price, quantity, and profit for a firm facing a demand curve (1 pt)

Q = 400 – 4P with constant MC = 40

Hint: Remember we use “inverse” demand curve where P(Q) to use the twice as steeply sloped rule.

b) Now write out the 3 conditions necessary for a monopolist to be able to price discriminate. (1 pt)

c) Consider a monopolist who can use 3rd degree price discrimination by separating the above demand curve into two markets: q1 = 150 – p1 and q2 = 250 – 3p2. [The inverse demand curves—which is what you’ll want to use—for these two are p1 = 150 – q1 and p2 = 250/3 – 1/3q2] Calculate the price and quantity sold in each market. (2 pts)

d) Compare the profits from price discriminating monopolist to the non price discriminating one. (1pt)

Answer 1