For Questions 2 and 3, consider the following scenario. A monopolist has customers in two market segments, "A" and "B," which respectively have demand given by the linear inverse functions P(q) = 65-q and PB(q) = 45-q. Costs of production for the firm are C(q) = 5q + 1,000 (i.e., constant marginal costs of $5 per unit produced and Fixed Costs of $1,000). If the seller must treat these two segments as one single market, he will set a price of p = 30; customers in Segment A will buy 35 units and customers in Segment B will buy 15 units. This price results in profit of $250. 2. 3. If the monopolist is able to engage in 3rd Degree Price Discrimination, then (in comparison to the "single market" outcome described above), A. B. C. D. Consumers' Surplus in Segment A will be larger and Consumers' Surplus in Segment B will be smaller. Consumers' Surplus in Segment A will be smaller and Consumers' Surplus in Segment B will be larger. Consumers' Surplus in Segment A will be larger and Consumers' Surplus in Segment B will be larger. Consumers' Surplus in Segment A will be smaller and Consumers' Surplus in Segment B will be smaller. If the monopolist is able to engage in 3d Degree Price Discrimination, then he can earn a profit of A. $300 B. C. D. $550 $850 $1,300
For Questions 2 and 3, consider the following scenario. A monopolist has customers in two market segments, "A" and "B," which respectively have demand given by the linear inverse functions P(q) = 65-q and PB(q) = 45-q. Costs of production for the firm are C(q) = 5q + 1,000 (i.e., constant marginal costs of $5 per unit produced and Fixed Costs of $1,000). If the seller must treat these two segments as one single market, he will set a price of p = 30; customers in Segment A will buy 35 units and customers in Segment B will buy 15 units. This price results in profit of $250. 2. 3. If the monopolist is able to engage in 3rd Degree Price Discrimination, then (in comparison to the "single market" outcome described above), A. B. C. D. Consumers' Surplus in Segment A will be larger and Consumers' Surplus in Segment B will be smaller. Consumers' Surplus in Segment A will be smaller and Consumers' Surplus in Segment B will be larger. Consumers' Surplus in Segment A will be larger and Consumers' Surplus in Segment B will be larger. Consumers' Surplus in Segment A will be smaller and Consumers' Surplus in Segment B will be smaller. If the monopolist is able to engage in 3d Degree Price Discrimination, then he can earn a profit of A. $300 B. C. D. $550 $850 $1,300
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.9P
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Transcribed Image Text:For Questions 2 and 3, consider the following scenario. A monopolist has customers in two market segments, "A" and
"B," which respectively have demand given by the linear inverse functions P(q) = 65-q and PB(q) = 45 - q. Costs
of production for the firm are C(q) = 5q + 1,000 (i.e., constant marginal costs of $5 per unit produced and Fixed Costs
of $1,000). If the seller must treat these two segments as one single market, he will set a price of p = 30; customers in
Segment A will buy 35 units and customers in Segment B will buy 15 units. This price results in profit of $250.
2.
3.
If the monopolist is able to engage in 3rd Degree Price Discrimination, then (in comparison to the "single market"
outcome described above),
A.
B.
C.
D.
If the monopolist is able to engage in 3rd Degree Price Discrimination, then he can earn a profit of
A.
$300
ABCD
B.
Consumers' Surplus in Segment A will be larger and Consumers' Surplus in Segment B will be smaller.
Consumers' Surplus in Segment A will be smaller and Consumers' Surplus in Segment B will be larger.
Consumers' Surplus in Segment A will be larger and Consumers' Surplus in Segment B will be larger.
Consumers' Surplus in Segment A will be smaller and Consumers' Surplus in Segment B will be smaller.
$550
$850
D. $1,300
C.
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