Question

(3rd Degree Price Discrimination) Consider a monopolist serving two identifiably distinct markets with no resale possible, so that the monopolist may practice third-degree price dis- crimination. Demand in market 1 is given by D₁(p₁) = 800 − 8p₁ and demand in market 2 is given by D₂(p₂) = 1200 − 12p₂. Marginal cost is constant, M C = 10, and there is no fixed cost.

A) Find the marginal revenue curve in each market, M R₁(q₁) and M R₂(q₂).

B) Find the values of price charged and quantity sold by the monop- olist in each market. Be sure to list all of them: p₁, q₁, p₂, and q₂.

C) Now suppose resale becomes possible, so that the monopolist can no longer price discriminate. What (uniform) price, p^m, does it charge? What is the total quantity it sells, Q^m?

D) How much more profit does the monopolist receive while price discriminating than when it sets a uniform price?

Answer 1

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