Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider the information in the previous question. Suppose now that the government prohibits price discrimination and forces the monopolist to charge a uniform price equal

image text in transcribedimage text in transcribedimage text in transcribed
image text in transcribedimage text in transcribedimage text in transcribed
Consider the information in the previous question. Suppose now that the government prohibits price discrimination and forces the monopolist to charge a uniform price equal to its marginal cost of production. As a result, consumer surplus equals 168.00 dollars, producer surplus equals 168.00 dollars, and the deadweight loss changes to 0.00 dollars.\fThe following graph shows the demand and marginal-cost functions faced by a perfectly-price- discriminating monopolist. The graph shows, for example, that the monopolist incurs a marginal cost of $4 to produce the first unit and sells that unit for $48. It incurs a marginal cost of $6 to produce the second unit and sells it for $46, without reducing the price on the first unit. Such a situation could arise if the monopolist could identify different customer groups (say, according to their income levels) and if the customers could not trade the good among each other. If they could, the prices in different markets would be equalized and the monopolist could not price discriminate. Why and how? Well, those who buy the good at a lower price could sell it to those who would otherwise be charged a higher price by the monopolist. Do we have such a good or service? Of course, we do. First, think about healthcare services. If a hospital offers its services at a lower price to its lower-income patients, those patients cannot sell those services to higher- income patients. Second, think of electric or natural-gas utilities. You cannot sell the electricity or natural gas that you buy from the utility company to your neighbor. Third, how about discount on tuitions to lower-income students. And, many other types of discounts on some goods and services to different customer groups such as elderly. In your work, draw the marginal revenue function as a line half way between the vertical axis and the demand function. In your work use geometric formulas to calculate things like consumer surplus, producer surplus, and the like. I know that the monopolist may not be able to sell 0.39 or 1.82 units of the good. But using geometric formulas saves time

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Macroeconomics

Authors: Robert C. Feenstra, Alan M. Taylor

Fourth Edition

1319061729, 978-1319061722

More Books

Students also viewed these Economics questions