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

Question

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

Market A: P = 127 - 4Q
Market B: P = 186 - 3Q

The monopolist faces a marginal cost of $25 and has no fixed costs. Given this information, what price should the monopolist charge in Market B?

Round your answer to two decimal places. Do not include a $ sign.

Note: The demand equations presented above show P equal to a function of Q, rather than the usual other way around. This is so you can use the same trick used in Unit 11 to find the marginal revenue curve.

Explanation / Answer

With price discrimination, in market B profit is maximized when Marginal revenue (MR) equals MC.

P = 186 - 3Q

Total revenue (TR) = P x Q = 186Q - 3Q2

MR = dTR / dQ = 186 - 6Q

Equating with MC,

186 - 6Q = 25

6Q = 161

Q = 26.83

P = 186 - (3 x 26.83) = 186 - 80.49 = 105.51

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