Consider the problem of a monopolist setting a menu of price/quantity bundles when there are two types of consumer and types are unobservable. The source of inefficiency in this setting is that the monopolist distorts the quantity in the low demanders' bundle. Why does the monopolist do this? Explain with reference to Figure 15.9. Why isn't the quantity in the high demanders' bundle also distorted?
Figure 15.9
Coffee Shop Example

Transcribed Image Text:

Unlt price $2.00 $1.50 $1.00 S0.50 MC- AC 3 Espresso shots In cup