Question

In: Economics

1. Explain why a monopolist’s profit when he price discriminates cannot be less than his profits...

1. Explain why a monopolist’s profit when he price discriminates cannot be less than his profits when he does not price discriminate.

2. The efficiency loss under perfect price discrimination is very high. True or False?

3. Consider a monopolist selling into two markets. Demand in the first market is given by P1 = 50 - 2Q1, and demand in the second market is given by P2 = 70 - 2Q2. Total cost for the monopolist is 50 - 10(Q1 + Q2), so marginal cost is 10.

  1. What are the quantities and prices sold in each of the two markets?
  2. What condition must hold in order for the monopolist to practice this kind of price discrimination?

Solutions

Expert Solution

True, the efficiency loss under perfect price discrimination is very high. the monopolist will charge the price equal to the willingness to pay of consumers hence its create deadweight loss at every unit this will increases the loss of efficiency at every level of unit sold.

The condition hold in order for the monopolist to practice this kind of price discrimination.

the marginal revenue from the different market is always equal to the common marginal cost.

MR1 = MR2 = MC

Rahul Sunny answered 1 week ago
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