The BCY Corporation provides accounting services to a wide variety of customers,
ID: 1250379 • Letter: T
Question
The BCY Corporation provides accounting services to a wide variety of customers, most of whom have had a business association with BCY for more than five years. BCY's inverse demand curve is: P = 10,000 - 10Q. BCY's marginal cost of service is: MC = 5Q.a. Acting as a monopolist, if BCY charges a uniform price for a unit of accounting
service, Q, what price must it charge per unit, and how many units must it
produce per time period in order to maximize profit? Calculate the consumer
surplus.
b. If BCY could enforce first-degree price discrimination, what would be the lowest
price that it would charge and how many units would it produce per time period?
c. With perfect price discrimination and ignoring any fixed cost, what is total profit?
How much additional consumer surplus is captured by switching from a uniform
price to first-degree price discrimination?
Explanation / Answer
R= 10,000Q- 10Q^2 MR= 10,000-20Q MR=MC so 5Q= 10,000- 20Q 25 Q=10,000; Q= 400 P= 10,000- 400*10= 6,000 Consumer surplus would be (10,000-6,000)* 400*1/2= 800,000. Under first degree price discrimination, the lowest price it would charge is where the marginal cost curve intersected the demand curve 5Q= 10,000-10Q 15Q= 10,000 Q= 667 P=10,000- 6670= 3,330 Not sure on c but hopefully that was some help.
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