Question

4. You are a monopolist facing the inverse demand p = 200 − Q, and wish to maximize your producer’s surplus by nonlinear price discrimination (sometimes called “second-degree price discrimination”). To keep things simple, assume that your marginal cost is zero.

(a)

If you charge 3 different prices for different levels of quantity purchased, what are these price levels

and the corresponding quantities that must be purchased to qualify for each price?

(b)

How much greater is your producer’s surplus for this form of price discrimination, compared with

setting a single monopoly price?

This is the ENTIRE problem verbatum. No quantity set was given.

Answer 1