Questions 22-25 A monopolist faces the following demand curve and marginal cost

Question

Questions 22-25 A monopolist faces the following demand curve and marginal cost curve for its product: QD = 200-2P. MC = 20. Suppose the monopolist introduces the following non-linear pricing discrimination strategy: $80 any quantity between 0 and 40 units $40 any quantity beyond the first 40 units P 22. How much profit does the monopolist earn using this strategy? 23. How much profit would the monopolist earn using the uniform pricing strategy? 24. What is the deadweight loss if the non-linear price discrimination strategy is implemented? 25. What is the level of consumers' welfare if the non-linear price discrimination strategy is implemented? (*) Sketch a graphical representation of monopolist's pricing strategy in 22-25. Questions 26-28

Explanation / Answer

Question 22.

Profit (Pr) of the monopolist in general case irrespective of any quantities would be:

Pr= QD*P - MC*QD

If quantity demanded varies from 0-40, profit =40*80 - 20*40

=3200-800

$2400 for total 40 units.

Now quantity demanded beyond 40 units, profit in this case= 40-20

=$20 for 41st quantity. and so on.

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