Question

a monopolistic firm sells it product to two types of customers , business customers and other customers . its total cost are given by Tc=20+2Q , where Q denotes total output . the total demand of business customers is given by Q^3 =14-P .The total demand of other customers is given by Q^T=5-0.5P . Assuming that third degree price discrimination between the two groups is possible. Calculate the prices that the firm will charge each group , the amount it will sell to each group , the consumer surplus of each group and the firm's total profit

Then describe informally and provide intuition for how a ban on price discrimination would affect the consumer surplus of business customers , the consumer surplus of other customers and the firm's profit

Answer 1

We have, T= 20 + QQ othes Customers Business - Customers Q = 14 - P p=14-'Q mp = 14-20 MC: 2 MR = mc 14-20 = 2 Q = 5-0-5 P P=10 - 20 MR=10-4Q MC=2 MR = mc 10-40 = 2 IP = 8 TR = 48 TC= 32 T = TR-TC T = 16 (Profit) p=6 TR = 12 T =24 π = TR-TG T= -12 Closs) 10 Consumer Susplen = X(6)X (6) 1 Adiconsumer Susplus - I (4) x (2) = 4 I - = 18 - - 6 7 22.5 Cos=18 CS

By a ban on price discrimination, it eleminate the motive of impasation of price dis somation Cie) elemination or reducing consumer Suplus. lasse business wes Price discrimination to charge different price in diferent market to increase their profit by reducing consumes susplus. There hore we can say that a ban on sice discrimination would decrease f the Consumer Surplus of business customers and consumes Surplus of other Customers. Where it Decrease ves the firm's.