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Quiz12_F10_Key

# Quiz12_F10_Key - and P 2 is the price paid by the second...

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3550 Quiz 12 F10 Last Name: First Name: 1. (3 points) In general, what are the three conditions needed for the firm to be able to do the 3 rd degree price discrimination? a. Price setter (have market power). b. Different groups of consumers with different willingness to pay (or different price elasticity of demand). c. Ability to prevent resale of low price units 2. (7) Suppose a monopolist sells in two distinct markets. The demand for the first market is given by P 1 = 240 - 2Q 1 where Q 1 is the quantity demanded and P 1 is the price paid by the first group. The demand for the second market is given by P 2 = 120 - Q 2 , where Q 2 is the quantity demanded
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Unformatted text preview: and P 2 is the price paid by the second group. The monopoly's marginal cost is given by MC = 4/9 Q, where Q is the total output produced by the monopoly. (a) Use the equations MR 1 = MR 2 = MC and Q 1 + Q 2 = Q to show that Q 1 = 50 units and Q 2 = 40 units. First, MR 1 = MR 2 Î 240-4Q 1 =120-2Q 2 Q 2 =2Q 1-60 Second, MR1=MC 240-4Q 1 =(4/9)(Q 1 +Q 2 ) 240-4Q 1 =(4/9)Q 1 +(4/9)(2Q 1-60) Then, Q 1 =50 & Q 2 =2Q 1-60=100-60=40 Substitute these values into the demand formulas to show that P 1 = \$140 per unit and P 2 = \$80 per unit. (b) MR 1 =MR 2 = MC = \$40 per unit....
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