1.Consider a discriminating monopolist who sells designer jeans. Suppose he has two different designs available: Couture and Derelict. There are two types of consumers: Type I and Type II. Each consumer wishes to buy at most one pair of jeans. Their valuations for each design are given below:

Couture Derelict

Type I $360 $120

Type II $160 $80

Suppose the monopolist cannot distinguish across consumer types, so that he will need to worry about self-selection whenever he wants to discriminate. Suppose the objective of the monopolist is to maximize revenues.

Initially, suppose that each type of consumer represents 50% of the population.

a.What is the optimal discrimination policy? Who will buy each design, and at what price? (5)

b.How would your answer change if Type-I consumers represented 25% and Type II represented 75% of the population? (5)