A monopolist sells to two groups of people and practices price discrimination by

Question

A monopolist sells to two groups of people and practices price discrimination by charging seperate prices for each group; students and non-students. This monopolist produces a constant marginal cost; MC = 10. Demand function of the students is Q1 = 100 - 2p1. The non-student demand is Q2 = 100 - 2p2.

A) What is the price for each group if he can successfully price discriminate? and charge a seperateprice in each market? How much profit does he make?

B) What is the price if he cannot price discriminate and has to set the same price for everyone? What is his profit?

C) How much of a profit would he make if he perfectly price discriminates?

D) Which one of the above is the best outcome for the monopolist (single price, segmented markets(third degree price discrimination), or first degree(perfect) price discrimination?

E) What is the best outcome for society? Why?

Explanation / Answer

A monopolist sells to two groups of people and practices price discrimination by

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