HW 5 Answers

HW 5 Answers - p 2 up to output q 2 and perfectly inelastic...

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Homework Assignment 5 Answers to Problems 4 and 6 from Chapter 9 Question 4. Yes, assuming it can prevent resales and provided at least one consumer in the first group values the product at more than marginal cost. It is optimal for the price-discriminating monopoly to sell at least one additional unit to that group at the lower price. The monopoly holds sales to the second group constant, because at p = $10 profits from that group are already maximized. Question 6 The diagram illustrates a case in which a price-discriminating monopolist produces less than a non-discriminating monopolist. Demand in market 2 is perfectly elastic at price
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Unformatted text preview: p 2 up to output q 2 , and perfectly inelastic at that output. Marginal cost is zero, for simplicity. A non-discriminating monopoly sets price equal to p 2 in both markets, selling qn 1 in market 1 and q 2 in market 2. A price-discriminating monopoly, on the other hand, sells the same quantity at the same price in market 2, but sells a smaller output qd 1 in market 1, at a higher price pd 1. The price discriminating monopoly’s overall output is therefore lower, at Qd rather than Qn ....
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