Question

Suppose that a price-searcher firm was going to use a first degree price discrimination strategy. The demand for their product is given by: QD= 170-P. The firm has a constant marginal cost of $21.00 per unit. Calculate the producer surplus the firm would earn from this strategy.

Answer 1

From first-degree price discrimination it will achieve a profit of 11,100.5 dollars

Step-by-step explanation:

Using first-degree price discrimination a firm would be able to eliminate all consumer surplus thus, keeping all the surplus for himself

the surplus will be the area below the demand line and above the marginal cost of 21 dollars

That will be:

(170 - 21) x 149 / 2 = 11,100.5