Question

Consider a monopolist that has two types of consumers. The first, students have a demand curve given by the following: Q

A =120−2P. The second type of consumer are non-students who have the following demand curve: Q
B =200−4P. If the monopolist has constant marginal and average cost equal to 10 , which of the following is true if the monopolist practices third degree price discrimination? Total profit earned equals 2150 . Total profit earned equals 2250. Total profit earned equals 2650 . Total profit earned equals 2850 . None of the above

Answer 1

A monopolist practicing third degree price discrimination will set different prices for different market segments. To calculate total profit, one must determine profit-maximizing quantity and price for each segment, calculate total revenue and total costs, and then subtract costs from revenue. The exact total profit requires further calculation with the given data, so none of the provided profit options can be confirmed as correct without those calculations.

Step-by-step explanation:

When a monopolist practices third degree price discrimination, they will set different prices for each segment of the market based on the demand elasticity of each group. For students with a demand curve of QA = 120 - 2P and non-students with a demand curve of QB = 200 - 4P, and constant marginal and average cost of 10, we calculate the profit for each segment by:

1. Finding the profit-maximizing quantity and price for each segment by setting marginal revenue equal to marginal cost (MR=MC).
2. Calculating total revenue (TR) by multiplying the quantity by the price for each segment.
3. Determining the total cost (TC) by multiplying the quantity by the average cost.
4. Subtracting total cost from total revenue to find the profit (TR-TC=Profit) for each segment and then adding the profits together.

Since the profit is not provided for each segment, the exact total profit cannot be determined without additional calculations. Therefore, without the specific calculations, we cannot confirm any of the given profit options.