Explain the difference between first and third-degree price discrimination. Hint, see H
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List two conditions necessary for third-degree price discrimination.
Rachel G.
You are a monopolist of widgets. There are two groups of widget customers: East and West. You are considering whether to engage in 3rd-degree price discrimination or to not price discriminate at all. Your marginal cost of serving either group is zero. The two groups have the following demand curves: QE = 200 – 4P for East and QW = 300 – 2P for West. a. Suppose that you do not price discriminate. What is the monopoly price for the combined market? b. What is the monopoly profit without price discrimination? c. Now, suppose that you engage in 3rd-degree price discrimination. What prices do you charge for the two groups? d. Is profit with 3rd-degree price discrimination higher or lower than without any price discrimination? e. Who gains and who loses from 3rd-degree price discrimination? f. What happens to total consumer surplus over both groups when you go from the case of no price discrimination to the case of 3rd-degree price discrimination?
Akash M.
You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1's elasticity of demand is -3, while group 2's is -5. Your marginal cost of producing the product is $40. a. Determine your optimal markups and prices under third-degree price discrimination. Markup for group 1: Price for group 1: $ Markup for group 2: Price for group 2: $ b. Which of the following are necessary conditions for third-degree price discrimination to enhance profits. Check all that apply: - At least one group has an elasticity of demand greater than 1 in absolute value. - There are two different groups with different (and identifiable) elasticities of demand. - We are able to prevent resale between groups. - At least one group has an elasticity of demand less than one in absolute value.
Adi S.
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