Suppose that you are the marketing manager of Citruscity, the only producer of grapefruits in the imaginary economy of Blockburg. As a monopolist, Citruscity's objective is to maximize its profit, so it is up to you devise a way to increase profits through price discrimination. As a former economics student, you know that many firms successfully practice price discrimination by separating their market into two identifiable types of consumers-what economists call third-degree price discrimination. Examples of this include student discounts, senior citizen discounts, and ladies' night discounts. After doing some research, you conclude that the demand for grapefruits varies greatly between consumers who clip coupons and those who do not. The following graphs show the overall dailly demand and marginal revenue (MR) for a pound of grapefruits for each group of consumers and the marginal cost (MC) for producing a pound of grapefruits. Assume that fixed costs are equal to zero. Note: You will not be graded on any changes made to these graphs. Coupon Clippers 5.00 4.50 Profit Max 4.00 3.50 Demand 3.00 2.50 2.00 1.50 MC 1.00 0.50 MR 10 20 30 40 50 60 70 20 90 100 PRICE (Dallars per pound of grapefruits)

Suppose that you are the marketing manager of Citruscity, the only producer of grapefruits in the imaginary economy of Blockburg. As a monopolist, Citruscity's objective is to maximize its profit, so it is up to you devise a way to increase profits through price discrimination. As a former economics student, you know that many firms successfully practice price discrimination by separating their market into two identifiable types of consumers-what economists call third-degree price discrimination. Examples of this include student discounts, senior citizen discounts, and ladies' night discounts. After doing some research, you conclude that the demand for grapefruits varies greatly between consumers who clip coupons and those who do not. The following graphs show the overall dailly demand and marginal revenue (MR) for a pound of grapefruits for each group of consumers and the marginal cost (MC) for producing a pound of grapefruits. Assume that fixed costs are equal to zero. Note: You will not be graded on any changes made to these graphs. Coupon Clippers 5.00 4.50 Profit Max 4.00 3.50 Demand 3.00 2.50 2.00 1.50 MC 1.00 0.50 MR 10 20 30 40 50 60 70 20 90 100 PRICE (Dallars per pound of grapefruits)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.9P

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