Question

I am having difficulties with figuring out the formulas for this this question. Is there a walk-through for this?
You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1’s elasticity of demand is -2, while group 2’s is -3. Your marginal cost of producing the product is $30.

a. You are a monopolist.
b. You compete against one other firm in a Cournot oligopoly.

c. You compete against 19 other firms in a Cournot oligopoly.

Answer 1

A monopoly is a single firm that produces goods that have no close substitute, while oligopoly market has a small number of relatively) big firms that produce similar, but slightly differentiated products.

A monopoly can practice 'Price discrimination' and charge different prices in different markets.

There are three types of price discrimination- first degree, second degree and third degree price discrimination. First degree means that each buyer pays a different price and the price is equal to reservation ( maximum price that a buyer would pay for the product) price of the buyer. Second degree price discrimination means that different price are charged by the monopoly for different quantities of goods sold (like higher price of single purchase and lower for bulk purchases). Third degree price discrimination means that monopoly charges different prices for different markets based on elasticity of demand, sex, age,etc.

Thus, the correct option is a - You are a monopolist (practicing third degree price discrimination)