Many schemes for price discriminating involve some cost. For example, discount coupons take up the time and resources of both the buyer and the seller. This question considers the implications of costly price discrimination. To keep things simple, suppose that our monopolist's production costs are simply proportional to output, so that average total cost and marginal cost are constant and equal to each other. On the following graph, use the grey point (star symbol) to indicate the price and quantity that would emerge under a monopoly without price discrimination. Then use the purple point (diamond symbol) to shade the area corresponding to the monopolist's profit, and use the green point (triangle symbol) to shade the area corresponding to consumer surplus. Finally, use the black point (plus symbol) to shade the area corresponding to deadweight loss. Let the region representing monopolist's profit be called XX, consumer surplus YY, and deadweight loss ZZ. Suppose the monopolist can perfectly price discriminate. The monopolist's profit is (?) in this case. pic 2 : The change in the monopolist's profit as a result of price discrimination is (X+YX+Y ) ? , which is (larger than ) ? the change in total surplus as a result of price discrimination. Now suppose that there is some cost of price discrimination. To model this cost, suppose that the monopolist has to pay a fixed cost CC to price discriminate. Under which of the following conditions would the monopolist pay the fixed cost to be allowed to price discriminate? Y>CY>C Y+Z>CY+Z>C Z>CZ>C Y+ZCY>C Y+ZCZ>C Y+Z>C True or False: The monopolist will price discriminate only if doing so is socially desired. True or False

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

pic 1 :

Many schemes for price discriminating involve some cost. For example, discount coupons take up the time and resources of both the buyer and the seller. This question considers the implications of costly price discrimination. To keep things simple, suppose that our monopolist's production costs are simply proportional to output, so that average total cost and marginal cost are constant and equal to each other.

On the following graph, use the grey point (star symbol) to indicate the price and quantity that would emerge under a monopoly without price discrimination. Then use the purple point (diamond symbol) to shade the area corresponding to the monopolist's profit, and use the green point (triangle symbol) to shade the area corresponding to consumer surplus. Finally, use the black point (plus symbol) to shade the area corresponding to deadweight loss.

Let the region representing monopolist's profit be called XX, consumer surplus YY, and deadweight loss ZZ.

Suppose the monopolist can perfectly price discriminate.

The monopolist's profit is (?) in this case.

pic 2 :

The change in the monopolist's profit as a result of price discrimination is (X+YX+Y ) ? , which is (larger than ) ? the change in total surplus as a result of price discrimination.

Now suppose that there is some cost of price discrimination. To model this cost, suppose that the monopolist has to pay a fixed cost CC to price discriminate.

Under which of the following conditions would the monopolist pay the fixed cost to be allowed to price discriminate?

Y>CY>C

Y+Z>CY+Z>C

Z>CZ>C

Y+Z<C

Under which of the following conditions would a benevolent social planner, who cares about total surplus, agree to allow the monopolist to price discriminate as long as it pays the fixed cost?

Y>CY>C

Y+Z<CY+Z<C

Z>CZ>C

Y+Z>C

True or False: The monopolist will price discriminate only if doing so is socially desired.

True

False

Demand
Monopoly Outcome
Profit (X)
MC3DATC
Consumer Surplus (Y)
Deadweight Loss (Z)
MR
Quantity
Let the region representing monopolist s profit be called X, consumer surplus Y, and deadweight loss Z.
Suppose the monopolist can perfectly price discriminate.
Price, Cost, Revenue

The change in the monopolist's profit as a result of price discrimination is
result of price discrimination.
which is
the change in total surplus as a
Now suppose that there is some cost of price discrimination. To model this cost, suppose that the monopolist has to pay a fixed cost C to price
discriminate.
Under which of the following conditions would the monopolist pay the fixed cost to be allowed to price discriminate?
O Y > C
O Y+ Z >C
O Z>C
O Y + Z <C
Under which of the following conditions would a benevolent social planner, who cares about total surplus, agree to allow the monopolist to price
discriminate as long as it pays the fixed cost?
OY>C
OY+Z<C
OZ> C
OY+Z>C
hp

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 7 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions