Answered step by step
Verified Expert Solution
Question
1 Approved Answer
fConsider the welfare effects when the industry operates under a monopoly and cannot price discriminate versus when it can price discriminate. Complete the following table
\fConsider 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 singierprice monopolies or perfect price discrimination, leave the entire row unchecked.) Check all that apply. Statement Single-price Monopoly Perfect Price Discrimination There is no deadweight loss associated with the profitmaximizing output. [:1 [:1 Total surplus is not maximized. [:] [:1 Barefeet produces the efficient quantity of Ooh boots. C] 7. Price discrimination and welfare Suppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendyr brand with no close substitutes. The following graph shows the market demand and marginal revenue (MR) curves Barefeet facesf as well as its marginal cost (MC), which is constant at $40 per pair of Ooh boots. For simplicity, assume that xed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means that its marginal cost curve is also equal to the average total cost (ATE) curve. First, suppose that Barefeet cannot price discriminate. That isf it must charge each consumer the same price for Ooh boots regardless of the consumer's willingness and abilityr to pay. On the following graph, use the black point (plus symbol) to indicate the profitmaximizing 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 --I- 90 ' Monopoly Outcome 1;; an '6 El E m I D O '5 60 CunsumerSurplus -: 2 so I In El. I'll E 4\" Prol E \"' 3" I I.\" 9 E 20 _ DeadWEIQhILOSS 1t] MR Deman I] l l l l I l l I \\ | 0 4-0 80 120 150 200 240 ZED 320 360 400 QUANTITY (Pairs Of 00h boots} Now, suppose that Barefeet can practice perfect price discriminationthat is, it knows each consumer's willingness to pay for each pair of Ooh boots and is able to charge each consumer that amount. On the foliowing graph, use the black point {pius symbol) to indicate the protmaximizing quantity soid and the lowest price at which the rm sells its boots. Next, use the purpie points (diamond symbol) to shade the profit, the green points (triangie symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer surplus, prot, or deadweight ioss equais zero, indicate this by leaving that element in its original position on the palette.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started