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Question 1 (20 marks; expected time = 36 minutes) For all questions where a numerical answer is required, please show all relevant iwrkings. Suppose a
Question 1 (20 marks; expected time = 36 minutes) For all questions where a numerical answer is required, please show all relevant iwrkings. Suppose a market is monopolized. The monopolist faces a demand cm've of the form P = 1:500 3Q: and a total cost function of the form TC = Q. a) Suppose that the monopolist can only charge a single price in the market. Explaim showing relevant workings, why this price will be $900. [3 marks) 1}} Now suppose the monopolist could price discriminate using second degree price discrimination. Suggest a price discrimination scheme {consisting of tw_o prices and their corresponding quantities) 1hat would mcrease the monopolist's prot compared to that available from charging the singleprice in part {a}. You must prove= with relevant calculations of the prot under the single price versus your suggested two- price scheme. that the scheme you have suggested results in higher prot compared to the single price scheme in (a). (Note: you may choose any two prices= as long as they are consistent with the demand curve= and they satisfy the requirement to increase prot above that 'om the single-mice monopoly.) (6 marks} c) Draw one clearly labelled diagram to illustrate: i. The single price monopoly situalion 'om {a}, showing the price: quantity and prot area. (3 marks) ii. The two-price (price discrimination) monopoly situation from [b}_ showing the prices, quantities and prot areas. {2 marks} :1) Describe how your two-price system 'om part (1:) affects the consumer surplus and the dead-w eight loss occurring in the market. Illustrate these areas on your diagram from (c). (6 marks}
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