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A monopolist firm serves 6 consumers. Each of the consumers only buy one unit of the good. Two consumers buy one unit if the price is lower or equal than $100 and the other four consumers buy one unit if the price is lower or equal than $10. The firm’s cost function is C(Q) = 5Q.
(a) Suppose the firm is restricted to set a single price for all consumers (i.e., no price discrimination). What price does the firm set? How much profit does the firm collect?
(b) How much consumer surplus is generated at the prices identified in (a)?
(c) Suppose the firm is able to set a personalized price for each consumer (i.e., first-degree price discrimination). What prices does the firm set? How much profit does the firm collect?
(d) How much consumer surplus is generated at the prices identified in (c)?
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