14.5 If the monopolist can maintain the separation between the two markets, what level of output should be produced in each market, and what price will prevail in each market? What are total proits in this situation?

How would your answer change if it costs demanders only €5 to transport goods between the two markets? What would be the monopolist’s new proit level in this situation?

How would your answer change if transportation costs were zero and then the irm was forced to follow a single-price policy?

Now assume the two different markets 1 and 2 are just two individual consumers. Suppose the irm could adopt a linear two-part tariff under which marginal prices charged to the two consumers must be equal but their lump-sum entry fees might vary. What pricing policy should the irm follow?

Suppose the government wishes to combat the undesirable allocational effects of a monopoly through the use of a subsidy.

a.

Why would a lump-sum subsidy not achieve the government’s goal?

b.

c.