In: Economics
Price Discrimination
Q1 = 24-0.20P1
Q2=
10-0.05P2
P1 =
120-5Q1 P2
= 200-20Q2
Given CTC = 35+40Q, thus MC = $40
i) With price discrimination (P1 is not equal to
P2)
P1 =
120-5Q1
MR1= 120-10Q1
For profit maximization MR1 = MC
120-10 Q1 = 40
required Q1= 8 thus the optimum level of
production for market 1 is 8
unit
required P1 =
(120-(5*8)) = $80
P2 = 200-20
Q2
MR2= 200-40 Q2
For profit maximization MR2 = MC
200-40 Q2=40
required Q2= 4 thus the optimum level of production for
market 2 is 4
unit
required P2=
(200-(20*4))= $120
ii) total quantity = Q1 + Q2 = 8+4= 12 units
So profit with price discrimination = TR1 +
TR2 – TC
= (80*8) + (120*4) – {35+(40*12)} =$
605
Hence, total benefit with price discrimination is $605