Question

Suppose the demand for a price maker’s product is estimated to be Qd = 100 – 2P and its total cost function is C(Q) = 10Q. Under first-degree price discrimination, what will be the firm’s profits?

Answer 1

Answer: See explanation

Step-by-step explanation:

From the question,

Qd = 100 – 2P

We have to use the subject of the formula to get the expression for Price(P). This will be

2P = 100 - Qd

P= (100 - Qd) /2

P = 50 - 0.5Q

Also, C(Q) = 10Q

MC = 10

Since P = MC

50 - 0.5Q = 10

Collect like terms.

50 - 10 = 0.5Q

0.5Q = 40

Q = 40/0.5

Q = 80

Recall that,

P = 50 - 0.5Q

= 50 - 0.5(80)

= 50 - 40

= 10

The profit will be calculated as:

= TR - TC

where,

Total revenue = Price × Quantity

= 80 × 10 = 800

Total cost = 10Q = 10 × 80 = 800

Profit = 800 - 800 = 0