Answered step by step
Verified Expert Solution
Question
1 Approved Answer
?. Price discrimination and welfare Suppose Clomper's is a monopolist that manufactures and sells Stompers, an extremely trendyr shoe brand with no close substitutes. The
?. Price discrimination and welfare Suppose Clomper's is a monopolist that manufactures and sells Stompers, an extremely trendyr 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 $30 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 followmg graph, use the black paint ( plus symbol) to indicate the profitmaXimiZing price and quantity. Next, use the purple p0ints (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 o'eadweight 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 I 80 Monopoly Outcome '5)" (D E m A B to "5 60 ConsumerSurplus "E _ so a '1) CI. 8 2 40 Prot C) 9, m 3\" I 9 E 20 _ Deadweight Loss 10 n l l l l MR: : l Denland' [1 El] 160 240 320 400 480 560 640 no 800 QUANTITY (Pairs of Stompers) Suppose now that Clornper'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 precisely that amount. On the following graph, use the black point {plus symbol) to indicate the profitmaXimizing 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 perfect 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 1. 80 Monopoly Outcome E {D D. E m I E w \"5 60 Prot '5: E 50 A D. E 2 4\" ConsumerSurplus 9, w 3 I 9 E 20 . Deadwelght Loss 10 Deman 0 1 ' ' ' ' ' ' ' I I d\\ 0 El] 160 240 320 400 480 580 640 no 800 QUANTITY (Pairs of Slompers)
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