Asked by jennifer
Suppose a monopolist faces an inverse demand function P=100-1/2Q, and the monopolist has a fixed marginal cost of $20. How much more would the monopolist make from perfect price discrimination compared to simply producing where marginal revenue equals marginal cost?
Answers
Answered by
economyst
Drawing a picture would help.
A normal monopolist would set MC=MR. Under this example, optimal Q=80, thus P=60. Total revenue is 80*60=4800. Total cost (represented by the area under MC between 0 and 80) is 80*20=1600. So, profit = 3200.
For the perfect price discriminator, total profit would be the area under demand, and above MC. In this example it is a simple triangle. Height=100-20=80, width =160. So area=profit=.5*80*160 = 6400
A normal monopolist would set MC=MR. Under this example, optimal Q=80, thus P=60. Total revenue is 80*60=4800. Total cost (represented by the area under MC between 0 and 80) is 80*20=1600. So, profit = 3200.
For the perfect price discriminator, total profit would be the area under demand, and above MC. In this example it is a simple triangle. Height=100-20=80, width =160. So area=profit=.5*80*160 = 6400
Answered by
Assen Geto
l Accept
There are no AI answers yet. The ability to request AI answers is coming soon!
Submit Your Answer
We prioritize human answers over AI answers.
If you are human, and you can answer this question, please submit your answer.