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A. First Degree Price discrimination: Honest Sanjay’s Use of First-Degree Price Discrimination Lecture #3 and Lecture...

A. First Degree Price discrimination: Honest Sanjay’s Use of First-Degree Price Discrimination

Lecture #3 and Lecture PPT #2 contains information about Sanjay's Used Car. Given FC = 5 and

MC = 2 without price discrimination and MC =3 with price discrimination to hire a better salesman who can find the customers’ reservation prices

1. Suppose that Sanjay moves his business to a larger city where demand is P = 20 - Q. Marginal cost conditions are the same. What price should Sanjay charge under simple monopoly pricing, and how much monthly profit will he earn?

2. Suppose that Sanjay moves his business to a larger city where demand is P =20 - Q. Marginal cost conditions are the same. What quantity will Sanjay sell under first- degree price discrimination, and how much monthly profit will he earn? In order to do the price discrimination, they pay commission for a salesperson thus Marginal Cost = 3 ($3,000).

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