Suppose that a monopolist producing bicycles can divide the aggregate demand into two groups: The domestic...

Suppose that a monopolist producing bicycles can divide the aggregate demand into two groups: The domestic market and the foreign market. The demand curve for the monopolist’s product in the domestic market is y1=1200-10p1 and the demand curve for the monopolist’s product in the foreign market is y2=800-10p2. The monopolist’s total cost function is given by C(y)= 50y where y=y1+y2.
a) Assume that the monopolist does not practice price discrimination. Calculate his/her profit-maximizing price-quantity combination and the maximum profit.
b) Assume that the monopolist practices third-degree price discrimination. Calculate his/her profit-maximizing price-quantity combination and the maximum profit in each market.
c) Check whether the third-degree price discrimination increases or decreases welfare

Expert Solution

with third degree price discrimination welfare has increased

Rahul Sunny answered 2 years ago

Suppose that a monopolist producing bicycles can divide the aggregate demand into two groups: The domestic...

Suppose that a monopolist producing bicycles can divide the aggregate demand into two groups: The domestic market and the foreign market. The demand curve for the monopolist’s product in the domestic market is y1=1200-10p1 and the demand curve for the monopolist’s product in the foreign market is y2=800-10p2. The monopolist’s total cost function is given by C(y)= 50y where y=y1+y2. a) Assume that the monopolist does not practice price discrimination. Calculate his/her profit-maximizing price-quantity combination and the maximum profit. b)...

Suppose that a monopolist producing bicycles can divide the aggregate demand into two groups: The domestic...

Suppose that a monopolist producing bicycles can divide the aggregate demand into two groups: The domestic market and the foreign market. The demand curve for the monopolist’s product in the domestic market is y1=1200-10p1 and the demand curve for the monopolist’s product in the foreign market is y2=800-10p2. The monopolist’s total cost function is given by C(y)= 50y where y=y1+y2. a) Assume that the monopolist does not practice price discrimination. Calculate his/her profit-maximizing price-quantity combination and the maximum profit. b)...

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Suppose that a monopolist producing bicycles can divide the aggregate demand into two groups: The domestic...

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