Many schemes for price discrintination involve somecosL For example, discount coupons take up the timeand resources of both the buyer and the seller. Thisquestion considers the implications of costly pricediscrimination. To keep things simple, let's assumethat our monopolist's production costs arc simplyproportional to output so that average total cost andmarginal cost arc constant and equal to each other.CHAPTER 15 MONOPOLY 317a. Draw the cost., demand, and marginal-revenuecurves for the monopolist. Show the pricethe monopolist would charge without pricediscrimination.b. ln your diagram, mark the area equal to the mernopolist's prolit and call it X. Mark the area equalto consumer surplus and call it Y. Mark the areaequal to the deadweight loss and call it Z.c. Now suppose that the monopolist can perfectlyprice discriminate. What is the monopolist'sprofit? (Give your answer in terms of X, Y, and Z.)d. What is the change in the monopolist's prolit fromprice discrimination? What is the change in totalsurplus from price discrimination? Which changeis larger? Explain. (Give your answer in terms ofX, Y,and Z.)c . Now suppose that there is some cost associatedwith price discrimination. To model this cost, let'sassume that the monopolist has to pay a fixed costC to price discriminate. How \\10uld a monopolistmake the decision whether to pay this lixed cost?(Give your answer in terms of X, Y, Z, and C.)f. How would a benevolent social planner, whocares about total surplus, decide whether themonopolist should price discriminate? (Give youranswer in terms of X~ Y, z .. and C.)g. Compare your answers to parts (c) and (f). Howdocs the monopolist's incentive to price discrintinatediffer from the social planner's? Is it possiblethat the monopolist will price discriminate eventhough doing so is not socially desirable?
Many schemes for price discrintination involve somecosL For example, discount coupons take up the timeand resources of both the buyer and the seller. Thisquestion considers the implications of costly pricediscrimination. To keep things simple, let's assumethat our monopolist's production costs arc simplyproportional to output so that average total cost andmarginal cost arc constant and equal to each other.CHAPTER 15 MONOPOLY 317a. Draw the cost., demand, and marginal-revenuecurves for the monopolist. Show the pricethe monopolist would charge without pricediscrimination.b. ln your diagram, mark the area equal to the mernopolist's prolit and call it X. Mark the area equalto consumer surplus and call it Y. Mark the areaequal to the deadweight loss and call it Z.c. Now suppose that the monopolist can perfectlyprice discriminate. What is the monopolist'sprofit? (Give your answer in terms of X, Y, and Z.)d. What is the change in the monopolist's prolit fromprice discrimination? What is the change in totalsurplus from price discrimination? Which changeis larger? Explain. (Give your answer in terms ofX, Y,and Z.)c . Now suppose that there is some cost associatedwith price discrimination. To model this cost, let'sassume that the monopolist has to pay a fixed costC to price discriminate. How \\10uld a monopolistmake the decision whether to pay this lixed cost?(Give your answer in terms of X, Y, Z, and C.)f. How would a benevolent social planner, whocares about total surplus, decide whether themonopolist should price discriminate? (Give youranswer in terms of X~ Y, z .. and C.)g. Compare your answers to parts (c) and (f). Howdocs the monopolist's incentive to price discrintinatediffer from the social planner's? Is it possiblethat the monopolist will price discriminate eventhough doing so is not socially desirable?
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter15: Monopoly
Section: Chapter Questions
Problem 12PA
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Many schemes for cosL For example, discount coupons take up the time and resources of both the buyer and the seller. This question considers the implications of costly discrimination that our monopolist's production costs arc simply proportional to output so that marginal cost arc constant and equal to each other. CHAPTER 15 a. Draw the cost., demand, and marginal-revenue curves for the monopolist. Show the price the monopolist would charge without price discrimination. b. ln your diagram, mark the area equal to the mer nopolist's prolit and call it X. Mark the area equal to consumer surplus and call it Y. Mark the area equal to the c. Now suppose that the monopolist can perfectly price discriminate. What is the monopolist's profit? (Give your answer in terms of X, Y, and Z.) d. What is the change in the monopolist's prolit from price discrimination? What is the change in total surplus from price discrimination? Which change is larger? Explain. (Give your answer in terms of X, Y,and Z.) c . Now suppose that there is some cost associated with price discrimination. To model this cost, let's assume that the monopolist has to pay a fixed cost C to price discriminate. How \\10uld a monopolist make the decision whether to pay this lixed cost? (Give your answer in terms of X, Y, Z, and C.) f. How would a benevolent social planner, who cares about total surplus, decide whether the monopolist should price discriminate? (Give your answer in terms of X~ Y, z .. and C.) g. Compare your answers to parts (c) and (f). How docs the monopolist's incentive to price discrintinate differ from the social planner's? Is it possible that the monopolist will price discriminate even though doing so is not socially desirable? |
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