Question

Assume that a pure monopolist is able to engage in perfect price discrimination and sell each unit of the product at a price equal to the maximum price the buyer of that unit of the product would be willing to pay. Complete the table below by computing total revenue and marginal revenue for the price discriminating monopolist.

                                                                       Total            Marginal            Total            Marginal

                          Quantity      Price          revenue           revenue               cost                  cost     

                                    0           $34          $______                                          $ 20

                                    1              32             ______          $______                    36              $______

                                    2              30             ______             ______                    46                ______

                                    3              28             ______             ______                    50                ______

                                    4              26             ______             ______                    54                ______

                                    5              24             ______             ______                    56                ______

                                    6              22             ______             ______                    64                ______

                                    7              20             ______             ______                    80                ______

                                    8              18             ______             ______                 100                ______

                                    9              16             ______             ______                 128                ______

                                  10              14             ______             ______                 160                ______

                (a) What is the marginal revenue that the discriminating monopolist obtains from the sale of each additional unit?

              (b) How many units would be produced and what would be the total revenue for the perfectly discriminating monopolist? What would economic profits be?

(c ) Compare the economic effects of price discrimination to no price discrimination for the pure monopolist in terms of profits and the level of output.

Answer 1