1. A market is made up of two consumers. The first has a demand P 1 = 1200 – 3q
ID: 1199903 • Letter: 1
Question
1. A market is made up of two consumers. The first has a demand P1 = 1200 – 3q1 and the other has demand P2 = 1200 – 6q2. There is one firm in the market acting like a monopolist with costs = Q2 + 90,000.
a] show that if the firm is able to identify the two consumers separately, following the profit-maximizing rule for 3rd-degree price discrimination, the results will end up with q1=400/3 and q2= 200/3 and the firms profit = 30,000.
b] suppose the firm implemented a 2 part tariff where each consumer is charged a price of 600 per a unit + a flat fee of 25,000.
i] show that the low demand consumers will not choose q2=0 with this system
ii] show that the result of this system is that it generates a more efficient market quantity and more profit for the firm than 30,000
Explanation / Answer
if the firm charges price discrimination
MR1=MR2=MC
thus 1200-6q1=1200-12q2
1200-6*400/3=1200-12*200/3
1200-800=1200-800
400=400
thus MR in both consumers case is same here,hence shown
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.