4. A firm faces a market demand curve P = 50 – 5 Q . It has a constant marginal

Question

4. A firm faces a market demand curve P = 50 – 5Q. It has a constant marginal cost of $10. Relative to standard monopoly pricing, how would a block pricing strategy where the first four units can be purchased for a price of $30 each but two more units can be purchased for an additional $20 each change consumer surplus and producer surplus? Consumer surplus would decrease by $10, and producer surplus would increase by $20. Consumer surplus would increase by $20, and producer surplus would increase by $20. Consumer surplus would increase by $20, and producer surplus would increase by $10. Consumer surplus would increase by $10, and producer surplus would increase by $20. 4. A firm faces a market demand curve P = 50 – 5Q. It has a constant marginal cost of $10. Relative to standard monopoly pricing, how would a block pricing strategy where the first four units can be purchased for a price of $30 each but two more units can be purchased for an additional $20 each change consumer surplus and producer surplus? Consumer surplus would decrease by $10, and producer surplus would increase by $20. Consumer surplus would increase by $20, and producer surplus would increase by $20. Consumer surplus would increase by $20, and producer surplus would increase by $10. Consumer surplus would increase by $10, and producer surplus would increase by $20.

Explanation / Answer

correct ans: Consumer surplus would increase by $10, and producer surplus would increase by $20.

Consumer surplus in case of monopoly is 0.2*4*20 = 40

Producer surplus = (30-10)*4 = 80

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