1. Suppose that you are a monopolist selling widgets. You face costs of C(Q) = 1

Question

1. 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) (3) What is the overall market demand that you face?
(b) (3) If you cannot price discriminate, what price will you charge? How many widgets will
you sell?
(c) (5) 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) (3) If you cannot price discriminate, what will be your total profits?
(e) (3) If you can price discriminate, what prices will you charge? How many widgets will you
sell?
(f) (3) If you can price discriminate, what will be your total profits?
(g) (5) 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).

NOTE: Please finish the problem in entirety by answering each question.

Explanation / Answer

C(Q) = 10 + 2Q , So Marginal Cost=10

a>Overall Market Demand=Q1(p) +Q2(p)= 20 - p1+40 - p2=60-p1-p2

b> 20-p1=10 or p1=20-10=10 , 40-p2=10 or p2=40-10=30

Q1=20-p1=20-10=10 , Q2=40-p2=40-30=10

d>If no price discrimination , the price will be 30 ( that is the higher of the two prices)

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