Consider a monopolist operating the underground in Europacity with a total cost curve given by c(x) = 15 + 5x. The monopolist sets two prices: a high price ph and a low price pl. everyone is eligible for the high price, but only by taking the tube outside the peak hours is anyone eligible for the discount price. Suppose that the only o¤-peak travelers are those who are not willing to buy the ticket at ph.
a. If the monopolist faces the inverse demand curve given by p(x) = 20 - 5x, what are the profit maximizing values of ph and pl?
b. How much economic profit does the monopolist take?
c. How much profit would be made if the same price were charged to all buyers (no price discrimination)? Discuss the difference from part b.