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If the monopolist uses perfect price discrimination, what price will it charge?

If the monopolist uses perfect price discrimination, what price will it charge?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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If the monopolist uses perfect price discrimination, what price will it charge?

The diagram presents a basic economic model typically used in microeconomic analysis to illustrate monopoly pricing strategy. **Axes:** - The vertical axis represents the price level, ranging from 0 to 100. - The horizontal axis represents quantity, from 0 to 40. **Curves and Lines:** 1. **Demand Curve (D):** - Slopes downward from a price of 100 (at quantity 0) to a quantity of 40 (at price 0). This reflects the typical negative relationship between price and quantity demanded. 2. **Marginal Cost (MC) Line:** - A horizontal line at a price level of 20. This suggests constant marginal costs, where each additional unit costs the same to produce. 3. **Marginal Revenue (MR) Curve:** - Slopes downward more steeply than the demand curve. It illustrates the additional revenue generated from selling one more unit. Typically, for a monopolist, MR < D because decreasing the price to sell more units lowers the revenue gained from units that could have been sold at a higher price. 4. **Equilibrium Points:** - **Q* (Quantity produced):** Found where the MR curve intersects the MC line, indicating the profit-maximizing quantity. - The corresponding price is found on the demand curve directly above Q*. In this diagram, this price level is 55. The graph provides a visual representation of how a monopolist determines the quantity to produce (Q*) and the price to charge for maximizing profits. The monopolist will produce up to the point where MR = MC and set the highest price consumers are willing to pay for that quantity as dictated by the demand curve.
Transcribed Image Text:The diagram presents a basic economic model typically used in microeconomic analysis to illustrate monopoly pricing strategy. **Axes:** - The vertical axis represents the price level, ranging from 0 to 100. - The horizontal axis represents quantity, from 0 to 40. **Curves and Lines:** 1. **Demand Curve (D):** - Slopes downward from a price of 100 (at quantity 0) to a quantity of 40 (at price 0). This reflects the typical negative relationship between price and quantity demanded. 2. **Marginal Cost (MC) Line:** - A horizontal line at a price level of 20. This suggests constant marginal costs, where each additional unit costs the same to produce. 3. **Marginal Revenue (MR) Curve:** - Slopes downward more steeply than the demand curve. It illustrates the additional revenue generated from selling one more unit. Typically, for a monopolist, MR < D because decreasing the price to sell more units lowers the revenue gained from units that could have been sold at a higher price. 4. **Equilibrium Points:** - **Q* (Quantity produced):** Found where the MR curve intersects the MC line, indicating the profit-maximizing quantity. - The corresponding price is found on the demand curve directly above Q*. In this diagram, this price level is 55. The graph provides a visual representation of how a monopolist determines the quantity to produce (Q*) and the price to charge for maximizing profits. The monopolist will produce up to the point where MR = MC and set the highest price consumers are willing to pay for that quantity as dictated by the demand curve.
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