You are a monopolist of some product that is costless to produce and which has a

Question

You are a monopolist of some product that is costless to produce and which has a maximum of 120 potential consumers. Of those 120 consumers, 80 value your product at $30, 20 value your product at $20, and 20 value your product at $10.

(a) Suppose you are unable to tell your consumers apart, i.e. you are unable to identify which consumers have which of the above valuations for your product. As a result, there is no reason to charge more than a single price. What is that single, profit maximizing price?

(b) Suppose you were able to identify which consumers had which valuations. How many prices would you charge to each type of consumer and what would those prices be? How much would your profits increase?

Explanation / Answer

A. The single profit maximising price which can be set will be $10 because it will lead to maximum sales and thus highest profits.

B. 3 different prices will be charged to the three different groups of consumers so as to maximise profits.

One group will br charged $30, one will be charged $20 and one will be charged $10.

This will help in capturing entire consumer surplus

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