2. A firm is operated under monopoly where there are two groups of customers. The market...

2. A firm is operated under monopoly where there are two groups of customers. The market demand from group 1 is given by Q1 = 80 – P. The market demand from group 2 is given by Q2 = 40 – P/2. The firm’s marginal cost function is given by MC =20.

a. Total market demand is given by Q= Q1 + Q2 = 120 – 3P/2. Find the firm’s producer surplus from combining the two markets and set a single optimal price.

b. Find the firm’s total producer surplus from separating the two markets (third degree price discrimination.

c. Use price elasticity of each demand function to explain why the third-degree price discrimination in b. cannot increase the firm’s producer surplus

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Expert Solution

Rahul Sunny answered 3 weeks ago

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