Suppose a monopolist faces two types of consumers: one with demand curve Q1 = 500 – 2P, and the other with demand curve Q2 = 1500 – 3P.Suppose the firm monopolist knows these demand curves but cannot tell the difference between an individual consumer of type 1 versus type 2. They can charge only one price to the aggregate market demand (horizontal sum across quantities of the two buyer types). Construct the market demand curve (it may have a kink), and calculate the monopolist’s optimal quantity and price. Illustrate this on a graph. Do they serve both markets or do they price out the low demand type? Illustrate the monopolist’s optimal second-degree price discrimination strategy on a graph, and calculate the price-quantity bundles offered to the market under this strategy. Assume the monopolist’s marginal costs are constant and equal to 100.Suppose the monopolist can segment the market between the two types directly and engage in price discrimination. What are the monopolist’s optimal prices and quantities for the two market segments? What are is the total deadweight loss relative to having two perfectly competitive markets? Again assume marginal costs are constant at 100.

Q1 = 500 – 2P---- Type 1 consumer demand functionQ2 = 1500 – 3P----Type 2 consumer demand…

Answered: Suppose a monopolist faces two types of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose a monopolist faces two types of consumers: one with demand curve Q1 = 500 – 2P, and the other with demand curve Q2 = 1500 – 3P.
1. Suppose the firm monopolist knows these demand curves but cannot tell the difference between an individual consumer of type 1 versus type 2. They can charge only one price to the aggregate market demand (horizontal sum across quantities of the two buyer types). Construct the market demand curve (it may have a kink), and calculate the monopolist’s optimal quantity and price. Illustrate this on a graph. Do they serve both markets or do they price out the low demand type? Illustrate the monopolist’s optimal second-degree price discrimination strategy on a graph, and calculate the price-quantity bundles offered to the market under this strategy. Assume the monopolist’s marginal costs are constant and equal to 100.
2. Suppose the monopolist can segment the market between the two types directly and engage in price discrimination. What are the monopolist’s optimal prices and quantities for the two market segments? What are is the total deadweight loss relative to having two perfectly competitive markets? Again assume marginal costs are constant at 100.

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