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Spring 2009
Instructor: Thomas D. Jeitschko
Assistant: Nakarin Amarase
Homework 2
Instructions
You must work in groups of at least two and no more than three students on this homework.
Hand in one copy of your work per group. Please ask me if you seek clari±cation on any
questions or the logistics of the homework and these instructions. Answer all questions.
1
Thirddegree price discrimination
Suppose there are two groups of consumers with the following inverse demands:
Group 1²s inverse demand
P
= 150
5
Q
Group 2²s inverse demand
P
= 90
2
Q
Let the monopolist have constant marginal cost
= 50
with zero ±xed cost.
1. Depict demands for each group of consumers and the market demand of both groups.
2. Suppose the monopolist can separate the two groups and charge separate prices to each
group. What will the prices be? What is consumer surplus? What are total pro±ts?
3. Suppose the monopolist can charge only one price to the two groups. What will the price
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 Spring '08
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