N1

You are a monopolist of widgets. There are two groups of widget customers: East and West. You are considering whether to engage in 3rd-degree price discrimination or to not price discriminate at all. Your marginal cost of serving either group is zero.

The two groups have the following demand curves: QE = 200 - 4P for East QW = 300 - 2P for West.

a. Suppose that you do not price discriminate. What is the monopoly price to the combined market?

b. What is the monopoly profit without price discrimination?

c. Now, suppose that you engage in 3rd-degree price discrimination. What prices do you charge for the two groups?

d. Is profit with 3rd-degree price discrimination higher or lower than without any price discrimination?

e. Who gains and who loses from 3rd-degree price discrimination?

f. What happens to total consumer surplus over both groups when you go from the case of no price discrimination to the case of 3rd-degree price discrimination?