Question
We learnt in the lectures that a monopolist can exercise price discrimination. Price discrimination refers to the business practice of selling the same good at
We learnt in the lectures that a monopolist can exercise price discrimination. Price discrimination refers to the business practice of selling the same good at different prices to different customers. Let's assume a simple case that our monopolist's production costs are simply proportional to output, so that average total cost (ATC) and marginal cost (MC) are constant and equal.]
a. [Draw a figure with cost (average total cost and marginal cost), demand, and marginal revenue curves for the monopolist. Show and label the monopoly price and quantity without price discrimination in your figure. In your diagram, mark the area equal to monopolist's profit and call it X. Mark the area equal to consumer surplus and call it Y. Mark the area equal to deadweight loss and call it Z.
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