Internet service in the local market is supplied by Laura's Internet Service. The demand function is: QD = 6,500 - 100P The marginal cost function is: MC(Q) = 6.67 + 0.0067Q If Laura practices first-degree price discrimination, what are consumer surplus and Laura's producer surplus in this market? Does Laura's market power and first-degree price discrimination result in reduced societal welfare? In your answer (i) define first degree price discrimination; (ii) calculate her consumer- and producer -surplus; and (iii) interpret the welfare impact.

Internet service in the local market is supplied by Laura's Internet Service. The demand function is: QD = 6,500 - 100P The marginal cost function is: MC(Q) = 6.67 + 0.0067Q If Laura practices first-degree price discrimination, what are consumer surplus and Laura's producer surplus in this market? Does Laura's market power and first-degree price discrimination result in reduced societal welfare? In your answer (i) define first degree price discrimination; (ii) calculate her consumer- and producer -surplus; and (iii) interpret the welfare impact.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter5: Supply, Demand, And Price: Applications

Section5.7: Application 7: The Price Of An Aisle Seat

Problem 2ST

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Concept explainers

Price Discrimination

Price discrimination or differential pricing is based on the principle that the seller will charge the buyer a price based on the buyer’s ability and willingness to pay for the product rather than applying uniform pricing for all.

Question

Internet service in the local market is supplied by Laura's Internet Service.

The demand function is: QD = 6,500 - 100P

The marginal cost function is: MC(Q) = 6.67 + 0.0067Q

If Laura practices first-degree price discrimination, what are consumer surplus and Laura's producer surplus in this market? Does Laura's market power and first-degree price discrimination result in reduced societal welfare? In your answer (i) define first degree price discrimination; (ii) calculate her consumer- and producer -surplus; and (iii) interpret the welfare impact.

Definition Definition Producer’s gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price and up to the equilibrium quantity.

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