Question 2.

(a) Explain three types of price discrimination and provide one example of each type of price

discrimination. (6 marks)

(b) In which case a profit-maximizing monopolist will be resource-allocative efficient? Explain your

answer. (4 marks)

1. Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 233 units of output. At 233 units, ATC is $11, and AVC is $9. The best policy for this firm is to__________ in the short run. Also, total fixed cost equals __________ for this firm.

a. continue to produce; $2

b. shut down; $450

c. continue to produce; $466

d. shut down; $2,097

e. continue to produce; $2,097