Question

Suppose that a monopolist can separate the demand into two easily identified groups (such as students vs. non students). The non-students’ demand (Group 1) is given by P1 = 150 − Q1, where P1 is the price and Q1 is the quantity demanded by this group. The students’ demand (Group 2) is given by P2 = 75 − 0.5Q2. The monopolist’s cost is as follows. There is no fixed cost, and the marginal cost is a constant at $5.

(a) If the monopolist charges the same price for both groups, how much does it charge to maximize its profit?

(b) If the monopolist charges the different prices, how much does it charge to maximize its profit for each group?

Answer 1