A monopolist hires you to design its pricing policy. After month of doing market research you realize that the own-price elasticity is not the same for different groups of consumers in the market. (a) If group (a) has an own-price elasticity of 2.16 and group (b) 1.26. Assuming that the firm can directly observe an indicator of belonging to groups (a) and (b), what degree of price-discrimination can the monopolist implement? which group will end up paying more? (b) Will producer's surplus increase or decrease with price discrimination? what about consumer surplus? (consider single pricing vs price discrimination) (c) If a you get hold of a magic crystal ball that tells you the exact willingness to pay of each consumer. What type of price discrimination can the monopolist use to maximize profits? is this strategy “efficient” from the point of view of total surplus? are consumers better-off or worse-off?
A monopolist hires you to design its pricing policy. After month of doing market research you realize that the own-price elasticity is not the same for different groups of consumers in the market. (a) If group (a) has an own-price elasticity of 2.16 and group (b) 1.26. Assuming that the firm can directly observe an indicator of belonging to groups (a) and (b), what degree of price-discrimination can the monopolist implement? which group will end up paying more? (b) Will producer's surplus increase or decrease with price discrimination? what about consumer surplus? (consider single pricing vs price discrimination) (c) If a you get hold of a magic crystal ball that tells you the exact willingness to pay of each consumer. What type of price discrimination can the monopolist use to maximize profits? is this strategy “efficient” from the point of view of total surplus? are consumers better-off or worse-off?
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter9: Monopoly
Section: Chapter Questions
Problem 20SQ
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A monopolist hires you to design its pricing policy. After month of doing market research you realize that the own-price elasticity is not the same for different groups of consumers in the market.
(a) If group (a) has an own-price elasticity of 2.16 and group (b) 1.26. Assuming that the firm can directly observe an indicator of belonging to groups (a) and (b), what degree of price-discrimination can the monopolist implement? which group will end up paying more?
(b) Will producer's surplus increase or decrease with price discrimination ? what about consumer surplus ? (consider single pricing vs price discrimination)
(c) If a you get hold of a magic crystal ball that tells you the exact willingness to pay of each consumer. What type of price discrimination can the monopolist use to maximize profits? is this strategy “efficient” from the point of view of total surplus? are consumers better-off or worse-off? (Hint: A graph can greatly clarify this part.)
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