1st Degree price discrimination
Hi, anyone got any insight to this question?
A monopolist provides service to two customers, 1 and 2. Their inverse demand
curves are given by P1(Q1) = 6 – Q1 and P2(Q2) = 5 – Q2, respectively. The monopolist’s
marginal cost of production is zero, but it incurs fixed costs of F per period of operation.
a) (5 points) Suppose that the monopolist could implement perfect, 1st Degree price
discrimination, extracting all of the surplus of both consumers. What is the largest value
of F that would allow the monopolist to at least break even?
Re: 1st Degree price discrimination
The question gives you a hint.....find the total surplus which is available for capture.
Since there are no marginal costs, this is the value of F.
Reminder: in this case the surplus available is the area of the triangle formed by the axes and the demand curve.