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 P_h = 24 – 2Q_h

Demand of the middle-income group is given by P_m = 20 – 2Q_m

Demand of the low-income group is given by P_l = 16 – 2Q_l

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 P_s, total quantity sold in the big market Q_t, and quantity sold to each group alone: Q_h, Q_m, & Q_l.
Find consumers’ surplus CS for each group or in each market.
Suppose the monopolist now decides to practice PD. His MC has not changed. Find the three prices charged: P_h, P_m, & P_l. Also find the three quantities: Q_h, Q_m, & Q_l.
Find CS for each group or in each market.
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 5 months ago

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