Question

In: Economics

A monopolist faces three groups of customers (or three markets) such that: Demand of the high-income...

A monopolist faces three groups of customers (or three markets) such that:

Demand of the high-income group is given by Ph = 24 – 2Qh

Demand of the middle-income group is given by Pm = 20 – 2Qm

Demand of the low-income group is given by Pl = 16 – 2Ql

  1. If the monopolist does not practice price discrimination (PD) and combines the three markets into one big market, then he charges a single price to everyone. If his marginal cost MC = $14, find the single price Ps, total quantity sold in the big market Qt, and quantity sold to each group alone: Qh, Qm, & Ql.
  2. Find consumers’ surplus CS for each group or in each market.
  3. Suppose the monopolist now decides to practice PD. His MC has not changed. Find the three prices charged: Ph, Pm, & Pl. Also find the three quantities: Qh, Qm, & Ql.
  4. Find CS for each group or in each market.
  5. Give your own conclusion of whether PD was “good” or “bad” to each group. In your opinion as an economist, was PD “good” or “bad” in this specific scenario?

Solutions

Expert Solution

Demand of the high-income group is given by Ph = 24 – 2Qh,

Demand of the middle-income group is given by Pm = 20 – 2Qm

Demand of the low-income group is given by Pl = 16 – 2Ql

MC = $14

under price discrimination.

Rahul Sunny answered 7 months ago
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