6. Given the following demand curve of a consumer for a monopolist’s product, Q
ID: 1120950 • Letter: 6
Question
6. Given the following demand curve of a consumer for a monopolist’s product, Q = 14 – 2P
a. Find the total revenue of the monopolist when it sells six units of the commodity without practicing any form of price discrimination. What is the value of the consumers’ surplus?
b. What would be the total revenue of the monopolist if it practiced first-degree discrimination? How much would the consumers’ surplus be in this case?
c. Answer part (a) if the monopolist charged P = $5.50 for the first three units of the commodity and P = $4 for the next 3 units. What type of price discrimination is this?
Explanation / Answer
a. The total revenue when it sells 6 units is 12. Value of consumer surplus is =0.5*6*3=9
b. Under first degree price discrimination the consumer surplus would be zero as it will maximize its profit converting the consumer surplus. So here the total revenue would be 12 at maximum willing price at $6.
c. (a) P = $5.50 , TR = 3*5.5 = 16.5
P = $4 , TR = 4*3 = 12
This is second degree price discrimination as it charges prices for different quantities.
P
Q
TR
MR
0
14
0
1
12
12
-6
2
10
20
-4
3
8
24
-2
4
6
24
0
5
4
20
2
6
2
12
4
7
0
0
6
P
Q
TR
MR
0
14
0
1
12
12
-6
2
10
20
-4
3
8
24
-2
4
6
24
0
5
4
20
2
6
2
12
4
7
0
0
6
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