Suppose there are two types of consumers: Type A and Type B. The demands for a monopolist’s product for each type of consumers are given by:
Type A: Q = 80 – 2P
Type B: Q = 60 – 3P
Assume the marginal cost of production is constant and MC = 4, and there are no fixed costs.
a) Suppose the firm is unable to distinguish between the two types of consumers, and therefore cannot engage in price discrimination. Sketch the demand curve facing the firm. Make sure your graph is accurate and carefully labeled.
b) What price will the monopolist charge?
c) How much profit will the monopolist make?
d) If the monopolist is able to charge different prices to each type of consumer, what price will she charge to type A consumers?
e) If the monopolist is able to charge different prices to each type of consumer, what price will she charge to type B consumers?
f) How much profit will the monopolist make if it can price discriminate?