Discriminating prices and two part tariff

Reference no: EM1316131

Consider a monopolist with cost function C (Q) = 3Q selling to two segments of consumers where Q is total output produced by the monopolist in both markets. Inverse demands for each segment are given by P (q₁) = 12 - q1 and P (q2) = 18 - (3/2)q. Resale among consumers is not possible.

a. If the monopolist can only charge one price, what uniform price should the monopolist set to maximize profits? How many units will the monopolist sell? Will the monopolist exclude either segment of the market?

b. If the monopolist can charge different prices to either market segment, what prices should the monopolist charge under third degree price discrimination to maximize profit? How many units will the monopolist sell in either market? Compare your profits made under third degree price discrimination to what you found in a).

c. If the monopolist can use a single two-part tariff, calculate the two part tariff that will maximize the firm's profits.

Reference no: EM1316131

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