Suppose you are given the following graph for McGraw Hill which sells in more th

Question

Suppose you are given the following graph for McGraw Hill which sells in more than one market.

Based on this graph, answer the following questions: (SHOW ALL CALCULATIONS TO RECEIVE CREDIT – NOT JUST THE FINAL ANSWERS)

If McGraw Hill acts as a single price monopoly and uses a common price, what will be the total revenues as compared with what the firm will earn if it engages in price discrimination?

What can be an economic rationale for charging a higher price in Country 2 vs Country 1?

What are the conditions needed for McGraw Hill to continue to engage in price discrimination

What will be the difference in profit levels of a single price monopoly vs a discriminating monopolist if the average costs is $3 per unit in common all the three scenarios.

(a) Country 1 (b) Country (c) Single-Price Monopoly 5 D1 MA2 MR MC 1 MC 1 12 21 Q, Books per day 2 Books per day Q, Books per day

Explanation / Answer

country 1- MR1=MC it leads to Q=5, p=3.5, R=p*Q=17.5

country 2- MR2=MC it leads to Q=4, p=5 , R=20

monopoly- MR=MC leads toQ=9, p=4, R=36 but in price discrmination R=20+17.5=37.5

as country 2 has inelastic demand its price is higher

as the both countries has different demand elasticity so to maximize profit price discrimination is necessary

Profit = R-C

country 1= profit= 17.5- (3*5)=2.5

country 2 profit= 20-(3*4)=8

monopoly profit=36-(3*9)=9

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