Question

(Figure: Third-Degree Monopolist) The monopolist in the graph has market power; he can separate the market into different consumer groups based on their elasticities of demand and he can prevent arbitrage. The monopolist has marginal and the second group costs of $10. If he practices third-degree price discrimination, he will charge the first group 50 47.5 45 42.5 40 3т.5 35 32.5 3D 27.5 25 22.5 20 17.5 15 12.5 1D 7.5 5 2.5 MR MR D 01 2 3 4 6 7 8 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Quantity (thousands) $10; $10 $27.50; $12.50 $30; $17.50 $20; $20 ead

Answer 1

Answer : The answer is option C.

For monopolist the profit maximizing condition is MR = MC. On profit maximizing output level the monopolist charge that price which is equal to demand. Here the marginal cost is $10. For first group the profit maximizing quantity level is 5 units. On 5 units quantity level the price is $30. For second group the profit maximizing quantity level is 7.5 units. On 7.5 units quantity level the price is $17.5. Therefore, option C is correct.