Suppose there are two classes of buyers in a market served by a monopolist. At this point the two classes are lumped together and the monopolist is currently producing the profit maximizing quantity based upon being a single price monopolist. Suppose that the monopolist perceives that its relevant market demand curve is given by the equation P = (40/3) – (2/3)Q and its MC = ATC = 4. a. Suppose this monopolist acts as a single price monopolist. Calculate the monopolist’s price, quantity, and profit given the above information. Now, suppose that the monopolist realizes that the two classes of buyers have different demand curves and that the first class of buyers demand curve is given by the equation P = 10 – Q while the second class of buyers demand curve is given by the equation P = 20 – 2Q. Assume for the rest of this problem that this monopolist will practice third degree price discrimination and will charge different prices for consumers in the two different classes of buyer. b. In the first class of buyer what quantity of the good will be provided, what price will consumers pay, and what will be the level of profits for this class of buyer? c. In the second class of buyer what quantity of the good will be provided, what price will consumers pay, and what will be the level of profits for this class of buyer? d. What is the total amount of profit that the monopolist receives when the monopolist practices third degree price discrimination? How does this level of profit compare to the level of profit the monopolist receives when it sells its output at a single price? e. For practice, find the monopolist’s market demand curve based upon the two classes of buyers. You will have multiple linear segments for this market demand curve and you will need to specify the relevant range for each demand curve segment.
Suppose there are two classes of buyers in a market served by a monopolist. At this point the two classes are lumped together and the monopolist is currently producing the profit maximizing quantity based upon being a single price monopolist. Suppose that the monopolist perceives that its relevant market demand curve is given by the equation P = (40/3) – (2/3)Q and its MC =
a. Suppose this monopolist acts as a single price monopolist. Calculate the monopolist’s price, quantity, and profit given the above information.
Now, suppose that the monopolist realizes that the two classes of buyers have different demand curves and that the first class of buyers demand curve is given by the equation P = 10 – Q while the second class of buyers demand curve is given by the equation P = 20 – 2Q. Assume for the rest of this problem that this monopolist will practice third degree
b. In the first class of buyer what quantity of the good will be provided, what price will consumers pay, and what will be the level of profits for this class of buyer?
c. In the second class of buyer what quantity of the good will be provided, what price will consumers pay, and what will be the level of profits for this class of buyer?
d. What is the total amount of profit that the monopolist receives when the monopolist practices third degree price discrimination? How does this level of profit compare to the level of profit the monopolist receives when it sells its output at a single price?
e. For practice, find the monopolist’s market demand curve based upon the two classes of buyers. You will have multiple linear segments for this market demand curve and you will need to specify the relevant range for each demand curve segment.
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