A monopolist has costs given by:
A monopolist faces demand from two groups of consumers.
Demand from class 1 is given by:
Demand from class 2 is given by:
a) Which group of customers has the more elastic demand curve?
b) Which group do you expect will pay a higher price under 3rd degree price discrimination?
c) A market research firm offers to provide the monopolist with information which would allow it to identify which class any given consumer belongs to. What is the maximum amount the monopolist would be willing to pay to hire the company? Hint: to solve this problem find the monopolists profit if it cannot price discriminate and compare to the monopolists profit if it can price discriminate. Please show all the steps you take to find the monopolists profit.
ANswer b: Demand from class 1 is relatively inelastic compared to class 2. We would thus expect class 1 to pay a higher price. Answer c: Step one: find the monopolists profit if it doesnt hire the firm (i.e….
t cannot price discriminate). We need to find the market demand and from that find the marginal revenue. Find market demand by horizontal summation.