13. Please 3. Suppose a monopolist recognizes that students have a different dem

Question

13. Please 3. Suppose a monopolist recognizes that students have a different demand schedule for their product than non-students. Specifically, inverse demand by students is given by: P 50 - Qs, while inverse demand by the rest of society (G) is given by P = 40-QG. The monopolist's costs are given by TC (Q) = 5Q + 50. If the monopolist were to attempt to 3rd degree price discriminate by selling to each group at a different price, what price would it charge students? What price would it charge the general public? Why wouldn't this work?

Explanation / Answer

P = 50 - Qs

MRs = 50 - 2Qs

TC = 5Q + 50

MC = 5

PROFIT MAXIMISATION

MRs = MC

50 - 2Qs = 5

45 = 2Qs

Qs = 45/2

= 22.5

P = 50 - 22.5

= 27.5

so he will charge 27.5 for students

P = 40 - QG

MRG = 40 - 2QG

MRG = MC

40 - 2QG = 5

35 = 2QG

QG = 17.5

P = 40 - 17.5

= 22.5

He will charge 22.5 for general public

since monopolist is charging higher from students than general public therefore it would not work.

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