Exercise 7: Price discrimination Consider the market of some good with a unique firm in it. In this market there are only two consumers, one of low valuation and one with high valuation. The firm is able to perfectly distinguish between them. Each 4 Econ 4631-Industrial Organization HW 3 consumer's gross consumer surplus is given by the following expression: q? \"(@1110 = 9i(aq1 31) for i = 1,2. The monopolist's cost function is given by C(qi) 2 2g? + 10, for z' = 1, 2. a) (3 points) Suppose the monopolist wishes to supply the market using packages. Set up the rm's maxi mization problem, detailing the objective function and the constraints b) (3 points) Briey explain why, at a solution, both constraints must hold with equality c) (3 points) Assume a = 2, 01 = 10 and 62 = 15. Solve for the firm's optimal packages: (Tf, q?) and (TQ', q)