A monopolist is selling in a market with two types of consumers, type H and type L. There are 30 type H consumers, each with demand function qu = 10 – 0.02P, and 50 type L consumers, each with demand function qu = 7-0.04P. Marginal cost is constant and equal to 40, and fixed cost is equal to 5000. a. Suppose that the monopolist can prevent the existence of a second-hand market. In other words, there can be no resale of the product between consumers after the initial purchase from the monopolist. What would the profit be for the monopolist from charging only one price to the entire market?
A monopolist is selling in a market with two types of consumers, type H and type L. There are 30 type H consumers, each with demand function qu = 10 – 0.02P, and 50 type L consumers, each with demand function qu = 7-0.04P. Marginal cost is constant and equal to 40, and fixed cost is equal to 5000. a. Suppose that the monopolist can prevent the existence of a second-hand market. In other words, there can be no resale of the product between consumers after the initial purchase from the monopolist. What would the profit be for the monopolist from charging only one price to the entire market?
Chapter1: Making Economics Decisions
Section: Chapter Questions
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A monopolist is selling in a market with two types of consumers, type H and
type L. There are 30 type H consumers, each with demand function qu = 10– 0.02P, and
50 type L consumers, each with demand function qu = 7-0.04P. Marginal cost is
constant and equal to 40, and fixed cost is equal to 5000.
a. Suppose that the monopolist can prevent the existence of a second-hand market.
In other words, there can be no resale of the product between consumers after the
initial purchase from the monopolist. What would the profit be for the monopolist
from charging only one price to the entire market?
b. Again, with no second-hand market possible, suppose the monopolist can
distinguish between type H and type L consumers and can offer a discount to type
L consumers. What are the profit-maximizing prices the monopolist will charge?
How many units of the good will each type of consumer buy? What will the
monopolist's total profit be?
c. What is total consumer surplus with only one price (part a)? What is total
consumer surplus with 3rd degree price discrimination (part b)?
d. If the monopolist could not prevent resale between consumers, would the
monopolist prefer to price discriminate or just charge one price? Why?
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