Question

If a monopoly faces an inverse demand curve of

pequals=330330minus−​Q,

has a constant marginal and average cost of

​$9090​,

and can perfectly price​ discriminate, what is its​ profit? What are the consumer​ surplus, welfare, and deadweight​loss? How would these results change if the firm were a​ single-price monopoly?

Profit from perfect price discrimination

​(piπ​)

is

​$nothing.

​(Enter your response as a whole​ number.)

Answer 1

If a monopoly faces an inverse demand curve of p = 330 − ​Q, has a constant marginal and average cost of

$90​,and can perfectly price​ discriminate, what is its​ profit? What are the consumer​ surplus, welfare, and

deadweight​ loss? How would these results change if the firm were a​ single-price monopoly?

Single price monopolist

Demand function is P = 330 - Q so MR = 330 - 2Q. MC = 90 so single price monopolist produces where MR =

MC or 330 - 2Q = 90. This gives Q = 240/2 = 120 units and price P = 330 - 120 = $210 per unit.

Consumer surplus = 0.5*(330 - 210)*120 = $7200.

Profit = (210 - 90)*120 = 14400.

DWL = 0.5*(210 - 90)*120 = 7200.

Perfect price discrimination monopolist

Demand function is P = 330 - Q. MC = 90 so perfect price discrimination monopolist produces where P =

MC or 330 - Q = 90. This gives Q = 240 units.

Consumer surplus = 0 because all the consumer surplus is extracted by the seller.

Profit = 0.5*(330 - 90)*240 = $28800

DWL = 0

Hence we see that profits are higher by $14400, CS is reduced by $7200 and deadweight loss is also reduced by $7200 when there is a perfect price discrimination monopolist.