Economics price discrimination and externalities question? Max points! Suppose t

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Economics price discrimination and externalities question? Max points!

Suppose that you are a monopolist selling widgets. You face costs of C(Q) = 10 + 2Q. Suppose that there are two types of consumers that buy your widgets. Group 1 has demand: Q1(p) = 20 - p1 Group 2 has demand: Q2(p) = 40 - p2

(a) What is the overall market demand that you face?

(b) If you cannot price discriminate, what price will you charge? How many widgets will you sell?

(c) Graph you answer to (b). Include MC, MR, and demand curves. Shade and label consumer surplus, producer surplus, and deadweight loss (if it exists).

(d) If you cannot price discriminate, what will be your total profits?

(e) If you can price discriminate, what prices will you charge? How many widgets will you sell?

(f) If you can price discriminate, what will be your total profits?

(g) Graph you answer to (e) using two separate graphs (one for each group of consumer). Include MC, MR, and demand curves. Shade and label consumer surplus, producer surplus, and deadweight loss (if it exists).

2. Again suppose that you are a monopolist selling widgets. You face costs of C(Q) = 10 + 2Q2.

Suppose you face the following market demand: Q(p) = 3000 ? 2p.

(a) What price will you charge? How many widgets will you sell?

(b) Suppose that a policy group claims that private costs do not equal social costs. They say that social marginal cost = 3Q. If you use SMC instead of PMC, what price will you

charge? How many widgets will you sell?

(c) In this situation (the one in (b)), are you generating a negative externality? Discuss

(in two sentences or less) how the government might get you to make decisions based off of SMC (in this particular situation)?

(d) Graph you answer to (b). Include PMC, SMC, MR, and demand curves.

(e) Suppose that a policy group claims that private costs do not equal social costs. They

say that social marginal cost = 6Q. If you use SMC instead of PMC, what price will you

charge? How many widgets will you sell?

(f) Graph you answer to (e). Include PMC, SMC, MR, and demand curves.

(g) In this situation (the one in (e)), are you generating a negative externality? Discuss

(in two sentences or less) how the government might get you to make decisions based off of SMC (in this particular situation)?

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