A monopolist has two sets of consumers. The demand for one set can be described by Q1 = 5 ? p. For the other set, the demand is Q2 = 10 ? p. The monopolist faces constant marginal cost of 2.
a. Derive the monopolist’s total demand if the two markets are treated as one.
b. What is the monopolist’s profit-maximizing price if both groups are charged the same price? At this price, how much is sold to members of each group? What is the profit?
c. Now suppose that the monopolist can separate the two groups and charge separate profit maximizing prices to each group. What will these prices be? What is the profit in this case?
d. Compare your answers in part (b) and (c). How will price discrimination affect the monopolist’s profit?