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[ Suppose 'Car Today' is the only firm selling cars in a small, rural town. Assume that people in the town do not want to
[Suppose 'Car Today' is the only firm selling cars in a small, rural town. Assume that people in the town do not want to leave the town to buy cars. Also assume that there is a constant marginal cost for 'Car Today'.]
- [What type of market structure do you think 'Car Today' belongs to? Why? Explain in 100 words or less.
- [Draw a graph for Car Today that shows the firm carrying out perfect price discrimination (first degree). Label the producer surplus, consumer surplus, and deadweight loss in the graph. No explanation required.
- [Now suppose the city council hears of Car Today's practices and outlaws price discrimination (and assume they can successfully enforce it). Draw a new graph showing what Car Today will do to maximize profits. Label the producer surplus, consumer surplus, and deadweight loss in the graph. No explanation required.
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