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12. [15 pts] A company has monopoly rights to sell the popular video “Boyfights”. Suppose there...

12. [15 pts] A company has monopoly rights to sell the popular video “Boyfights”. Suppose there are two groups of buyers of Boyfights. Demand for the respective groups is given by the following equations: Group I: P1 = 10 – Q1 Group II: P2 = 8 – 2Q2 Where Q1 and Q2 are the number of Boyfights movies sold to each group. The total cost function for making each copy of the movie is TC = Q, where Q = Q1 + Q2. The marginal cost function is thus MC = 1. Now suppose that the company can identify buyers from each group. Also assume that buyers from one group cannot resell the good to buyers from the other group. The monopolist will practice third-degree price discrimination by setting separate prices, P1 and P2 for Group I and Group II respectively.

1. What is the total deadweight loss under the third-degree price discrimination (relative to perfect competition)? SHOW YOUR WORK

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