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.

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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.