A monopolist is seeking to price discriminate by segregating the market. The dem
ID: 1120676 • Letter: A
Question
A monopolist is seeking to price discriminate by segregating the market. The demand in each market is given as follows:
Market A: P = 122 - 4Q
Market B: P = 104 - 3Q
The monopolist faces a marginal cost of $25 and has no fixed costs. Given this information, what price should the monopolist charge in Market B?
Round your answer to two decimal places. Do not include a $ sign.
Note: The demand equations presented above show P equal to a function of Q, rather than the usual other way around. This is so you can use the same trick used in Unit 11 to find the marginal revenue curve.
Explanation / Answer
With price discrimination, in market B profit is maximized when Marginal revenue (MR) equals MC.
P = 104 - 3Q
Total revenue (TR) = P x Q = 104Q - 3Q2
MR = dTR / dQ = 104 - 6Q
Equating with MC,
104 - 6Q = 25
6Q = 79
Q = 13.17
P = 104 - (3 x 13.17) = 104 - 39.51 = 64.49