Question

Handwrite in text plz not in pic since its hard to read from and plz dont copy answers that were answered before least 2-3 paragraphs

3. George has a monopoly on burrito sales in a small town in Kansas. The burritos cost him a constant $5 each to produce. He faces following demand schedule for his product:

Price	Quantity Demanded
$30	0
$25	1
$20	2
$15	3
$10	4
$5	5
$0	6

• Under normal monopoly conditions, how many burritos should he produce, what price should he charge, and how much profit can he expect to make?
  • Draw a graph under these assumptions showing (and calculating) producer surplus, consumer surplus, economic surplus and deadweight loss.
• If George was able to engage in perfect price discrimination, how many burritos would he produce, what would his total revenue be, and how much profit would he earn?
  • Draw a graph under these assumptions showing (and calculating) producer surplus, consumer surplus, economic surplus and deadweight loss.
• Is society better off by allowing George to perfectly price discriminate? Defend your answer.

Answer 1

First of all calculate the Total revenue then Marginal revenue. Refer the attached picture

In case of monopoly the monopolist maximizes profit at MR =MC

Refer the above table at a price of $ 15, MR = MC. Therefore, the monopolist maximizes profit by charging a price = $ 15 and Quantity = 3 units.

Profit = TR -TC = $ 15 × 3 - $ 5 × 3 = $ 30

Price = $ 15 per unit

Quantity = 3 units

Profit = $ 30

In case of perfect competition George will charge different price from all the individuals. The output will be equal to the output of perfect competition.

Total output = 5 units

Dead weight loss = 0

Consumer surplus = 0

Producer surplus = (1/2)×(30-5)×5 = $ 62.5

Total surplus = $ 62.50

Total revenue = $ 87.50

Society is better of under price discrimination since the output is equal to the perfectly competitive market. The dead weight loss is zero. And the firm is operating at its maximum output level.

Please consider my graph and if having any issue please contact if having any query will be obliged to you for your generous support. Your help mean a lot to me. Thank you