3) Second Degree Price Discrimination
This question is demanding! A firm wants to price discriminate using quantities (nonlinear
pricing or 2nd degree price discrimination). It faces two demand curves where each
consumer only buys one unit of the good.
Group 1: P = 60-2Q
Group 2: P = 80-Q
Marginal cost is constant and equals MC=20
(a) Before the firm price discriminates, what are the two quantities and prices?
(4) Second Degree Price Discrimination
Further develop Question (3). The company now changes Q1 to maximize its surplus.
(a) What are the profit maximizing quantities?
(b) What was the consumer surplus for the larger quantity before price discrimination.
After price discrimination, what is the remaining consumer surplus for the larger
quantity?