Q1) Consider a monopolist with cost function C (Q) = 3Q selling to two segments of consumers where Q is total output manufactured by monopolist in both markets. Inverse demands for each segment are given by P (q_{1}) = 12 - q1 and P (q2) = 18 - (3/2)q. Resale among consumers is not possible.
a. If monopolist can only charge one price, what uniform price must monopolist set to maximize profits? How many units will monopolist sell? Will monopolist exclude either segment of the market?
b. If monopolist can charge different prices to either market segment, what prices must monopolist charge under third degree price discrimination to maximize profit? How many units will monopolist sell in either market? Compare your profits made under third degree price discrimination to what you found in a).
c. If monopolist can use single two-part tariff, compute two part tariff which will maximize firm's profits.