You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Analysts at your firm have determined that group 1’s elasticity of demand is −3, while group 2’s is −5. Your marginal cost of producing the product is $40. a. Determine your optimal markups and prices under third-degree price discrimination. Markup for group 1: Price for group 1: Markup for group 2: Price for group 2: $ b. Which of the following are necessary conditions for third-degree price discrimination to enhance profits.

You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Analysts at your firm have determined that group 1’s elasticity of demand is −3, while group 2’s is −5. Your marginal cost of producing the product is $40. a. Determine your optimal markups and prices under third-degree price discrimination. Markup for group 1: Price for group 1: Markup for group 2: Price for group 2: $ b. Which of the following are necessary conditions for third-degree price discrimination to enhance profits.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter14: Indirect Price Discrimination

Section: Chapter Questions

Problem 6MC

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