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  • 1 Post By SpringFan25

Thread: 1st Degree price discrimination

  1. #1
    Mar 2013

    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?

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  2. #2
    MHF Contributor
    May 2010

    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.
    Last edited by SpringFan25; Mar 27th 2013 at 03:56 PM.
    Thanks from Suzannah
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