Suppose a discriminating monopolist is selling a product in four separate markets in which demand functions are:
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Question:
Suppose a discriminating monopolist is selling a product in four separate markets in which demand functions are:
Q1 = 300 - P1; Q2 = 200 - 0.5 P2; Q3 = 150 - 0.4P3 and Q4 = 75 - 0.25P4.
Assume further that the total cost of the firm is given as TC = 65,000 - 100Q.
As an economic adviser you are required to determine:
- The prices to be charged in the four markets and the amount of output to be sold in each market so that total profits can be maximized.
- Calculate the total profit to be made from the strategy of price discrimination.
- Explain what would have happened if this monopolist did not implement this strategy of price discrimination.
- Elasticities in each market and comment.
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