A monopolist is seeking to price discriminate by segregating the market. The dem

Question

A monopolist is seeking to price discriminate by segregating the market. The demand in each market is given as follows:

Market A: P = 136 - 2Q
Market B: P = 111 - 3Q

The monopolist faces a marginal cost of $27 and has no fixed costs. Given this information, what is the difference between the total quantity the price-discriminating monopolist will supply across both markets and the total quantity that would be supplied in a perfectly competitive market with the same marginal costs for firms at equilibrium?

Round your answer to two decimal places. Do not include a $ sign. Your answer should be a positive number.

Explanation / Answer

A monopolist maximizes profit by producing and selling at the point MR = MC

MR(A) = dPQA/dQA = 136-4QA

MR(B) = dPQB/dQB = 111-6QB

MC(A) = MC(B) = 27

a)

Market A:

MR(A) = MC(A)

136-4QA = 27

QA* = 27.25 units

Market B:

MR(B) = MC(B)

111-6QB = 27

QB* = 14 units

Total monopoly output = QA* + QB* = 41.25 units

b)

Market A:

P(A) = MC(A)

136-2QA = 27

QA* = 54.5 units

Market B:

P(B) = MC(B)

111-3QB = 27

QB* = 28 units

Total competitive output = QA* + QB* = 82.5 units

c)

Difference in output = 82.5 – 41.25 = 41.25 units produced more in case of monopoly

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