Question

Suppose that a monopolist sells a product to men and women. If the firm sets a single price, the monopolist would produce 100,000 units and sell them at a price of $5.00 per unit. Suppose that at that price, the price elasticity of demand for men is -3.50, and the price elasticity of demand for women is -0.80. The monopolist is considering whether he should set discriminatory prices and asks for your advice.

Suppose the monopolist is thinking about charging men a 10% higher price. If the monopolist does so, the quantity demanded by men would fall by _____.
Suppose the monopolist is thinking about charging women a 10% higher price. If the monopolist does so, the quantity demanded by women would fall by _____.

Answer 1

1. 35%

2. 8%

Step-by-step explanation:

1. Price elasticity of demand = % change in quantity demanded / % change in price

The price elasticity of demand for men is -3.50

when the prices are charged 10% for men then the quantity will be

-3.50 = x / 10 %

x = 35%

Percentage change in quantity demanded is 35% for men.

2. The price elasticity of demand for women is -0.80

when the prices are charged 10% for men then the quantity will be

-0.8 = x / 10 %

x = 8%

Percentage change in quantity demanded is 8% for women.