1. Suppose there are two groups of consumers: high demand (1) and low demand (2).

Inverse demands are

p = 12 - q1, 0 < p < 12

p = 8 - q2, 0 < p < 8

a) Suppose that the monopolist charges a uniform price on the integrated market and that his marginal cost is c = 0. Find price, quantity sold, consumer surplus and monopolist's profit. Compute the social welfare (sum of consumer surpluses and profits.)

b) Now assume that the monopolist can price discriminate between the market segments. Find the prices and quantities for the low demand and the high demand market. Show that welfare goes down with price discrimination.