Question

A monopolist selling a product in two separate markets must decide how much to sell in each market to maximize profits. Assuming the elasticities of demand differ across the markets and that there is no possibility for resale across the markets, graphically show the profit maximizing level of output assuming the monopolist is able to price discriminate. Show the output that is sold and the price charged in each of the markets. Show the price and output levels in each market if the monopolist is unable to price discriminate.

Answer 1

Here is a monopolist that is selling the profit maximizing level of output q1 and q2 for two difference market demands D1 and D2. This is found assuming the monopolist is able to price discriminate. The profit is higher because now different prices are charged from two consumer groups. As a single price monopolist, the price is p1 and output level is q1 charged from all consumers in the single market where market segmentation is not done if the monopolist is unable to price discriminate.