7. Price discrimination and welfare Suppose Clomper's is a monopolist that manufactures and sells Stompers, an extremely trendy shoe brand with no close substitutes. The following graph shows the market demand and marginal revenue (MR) curves Clomper's faces, as well as its marginal cost (MC), which is constant at $40 per pair of Stompers. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Clomper's marginal cost is constant, means that its marginal cost curve is also equal to the average total cost (ATC) curve. First, suppose that Clomper's cannot price discriminate. That is, it must charge each consumer the same price for Stompers regardless of the consumer's willingness and ability to pay. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market without price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.) 100 90 80 Monopoly Outcome A Consumer Surplus 8 8 8 PRICE (Dollars per pair of Stompers) O MC = ATC Profit 8 8 20 Deadweight Loss 10 MR Demand 0 80 160 240 320 400 480 560 640 720 800 QUANTITY (Pairs of Stompers)Suppose now that Clomper's is able to perfectly price discriminatethat is, it knows each consumer's willingness to pay for a pair of Stompers and is able to charge each consumer preciseiy that amount. On the folloWing graph, use the black point (plus symbol) to indicate the profitsmaximizing quantity sold and the lowest price at which the firm sells its boots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market With pen'ect price discrimination. { Note: if you decide that consumer surplus, profit, or o'eao'weight loss equals zero, indicate this by leawng that element in its original position on the palette) mo 90 so Monopoly Outcome E :1 E m - a E '5 50 Prot E a 50 A :1 e MC=ATc 4'] Consumersurplus a 9 w 3\" - Q E 20 Deadwelgnl Lees i0 Deman u u an mp 240 32m 400 43m 550 640 72a EEK] QUANTITY (Pairs of Slumpers) Consider the welfare effects when the industry operates under a monopuiy and cannot price discriminate versus when it can price discriminate Complete the folloWing table by indicating under which market conditions each of the statements is true. (Note: if the statement isn't true for either singlerprice monopolies or pen'ect price discrimination, leave the entire row unchecked) Check all that apply. Homework(Ch 15) 100 90 Monopoly Outcome 80 Profit 8 8 A PRICE (Dollars per pair of Stompers) MC = ATC Consumer Surplus 8 20 Deadweight Loss 10 Demand 0 80 160 240 320 400 480 580 640 720 QUANTITY (Pairs of Stompers) Consider the welfare effects when the industry operates under a monopoly and cannot price discriminate versus when it can price discriminate. Complete the following table by indicating under which market conditions each of the statements is true. (Note: If the statement isn't true for either single-price monopolies or perfect price discrimination, leave the entire row unchecked.) Check all that apply. Statement Single-price Monopoly Perfect Price Discrimination Clomper's produces a quantity less than the efficient quantity of Stompers. O O There is no deadweight loss associated with the profit-maximizing output. 0 O Total surplus is not maximized. 0 Grade It Now Save & Continue Continue without saving