You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1’s elasticity of demand is −3, while group 2’s is −5. Your marginal cost of producing the product is $40. a. Determine your optimal markups and prices under third-degree price discrimination. b. Identify the conditions under which third-degree price discrimination enhances profits.
You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1’s elasticity of demand is −3, while group 2’s is −5. Your marginal cost of producing the product is $40. a. Determine your optimal markups and prices under third-degree price discrimination. b. Identify the conditions under which third-degree price discrimination enhances profits.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter14: Indirect Price Discrimination
Section: Chapter Questions
Problem 10MC
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