Question

A monopolist sells in two markets. The demand curve for her product is given by p1 = 120 y1 in the Örst market; and p2 = 105 y2 2 in the second market, where yi is the quantity sold in market i and pi is the price charged in market i. She has a constant marginal cost of production, c = 10, and no Öxed costs. She can charge di§erent prices in the two markets. 1) Suppose the monopolist charges di§erent prices in di§erent markets. What type of price discrimination is this monopolist using? (1p) 2) Now, suppose the monopolist must charge the same price in both markets. (a) Calculate the aggregate (total) demand. (3p) (b) Write down the total proÖt function of the Örm. (2p) (c) Calculate the proÖt maximizing price p; total quantity y T ; and quantities y1 and y2 to be produced in market 1 and 2, respectively. (4p) 3) Suppose the Örst market whose demand is p1 = 120 y1; was perfectly competitive, (hence, several Örms can provide the same product) where each Örm had a marginal cost of $10. What would be the price and total quantity in this perfectly competitive market? (Give numerical values for this price and total quantity.

Answer 1

Ans.

As monopolist is charging price according to the demand elasticities so it is 3rd price discrimination he is using.