A monopolist sells travel services to two groups of people with the following demand curves Q1 = 100 – 2P1 (and MR1 = 50 – Q1) and Q2 = 60 – P2 (and MR2 = 60 – 2Q2) . The marginal cost of providing one unit of travel service to either of the groups is the same for the monopolist, i.e., MC = $10 per unit.
(a) Identify whether group 1 or group 2 has more elastic demand.
(b) If the monopolist can price discriminate, then what prices would the monopolist charge the two groups for travel services? What quantities will the monopolist sell to each group?
(c) Suppose the monopolist is forced to charge a single price to all consumers regardless of which group they belong to. What is the profit maximizing price and quantity? Who benefits from this policy? Who loses?
(d) What would be equilibrium price and quantity if the market was competitive?