question 1

Suppose that a firm with market power wants to price discriminate and they decide to do so by offering quantity discounts. There are two groups of individuals in the market, males and females, with males having a more inelastic demand than females. The firm offers a price of $70 if males purchase 10 units and offers a price of $50 if males purchase 50 units. These values are indicated on the graph below. Price 90 Demand Males 70 50 10 20 50 Quantity a. What consumer surplus do males gain by purchasing 10 units of the good for $70? b. What consumer surplus do males gain by purchasing 50 units of the good for $50? Hint: They will gain some consumer surplus but also lose some, so you should find the net gain: c. Is this quantity discount scheme incentive compatible (IC) for males? Type yes if it is IC, or type no if it is not IC