Question:

Darn economics questions (monopolies). My text book and info online doesn't give me straight forward info!

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http://speedway.its.utexas.edu/speedway-files/college/eco304k/L13Q12.gif

Question:

If the monopoly in the link above could engage in perfect price discrimination, then each buyer would pay (a)__? The lowest ticket price would be (b)___? The number of tickets sold would be (c)_____?

My thoughts on the answer:

a is $2 right? I'm so confused because everywhere it says that MR = D, there are 2 separate lines for it in the img. I don't know how to get part b/c.

# If a perfectly competitive industry becomes a monopoly(no cost change), which happens:

1. The producer benefits, but consumers and society are harmed.

2. The producer and society are harmed, but consumers benefit.

3. The producer and society benefit, but consumers are harmed.

4. The producer is harmed, but consumers and society benefit.

# Consumer surplus is largest for .

a)perfectly competitive industry

b) single-price monopoly

c) price discriminating-mon.

d.)perfectly price-discriminating monopoly

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1 ANSWERS


  1. a) the maximum they are willing to pay, which corresponds to the demand curve

    b) $2; the monopolist is not going to produce for a price below its marginal cost.  In this case, the marginal revenue curve is equal to the demand curve because the firm can charge everybody a different price

    c) 60, because that's where the demand curve intersects the mc curve

    1) producer benefits, but consumers and society are harmed

    Total surplus decreases, because the quantity produced is less than the quantity where the demand and supply curves intersect, so society is harmed.  Consumers are harmed, because there are now some consumers who are willing to pay above marginal cost, but will not pay the monopolists' price.  The producer benefits, because it now earns positive economic profits.

    2) a perfectly competitive industry.  In a single price monopoly, the price is higher than pc, so consumer surplus is less.  In a price discriminating monopolist, the monopolist charges a higher price to some people, so their consumer surplus is smaller, yet the price does not go below the pc price, so there is no way that the gained cs from the lower price people can make up for the loss of the higher willingness-to-pay buyers.  In a perfectly price discriminating market, the producer charges each buyer the max they are willing to pay, so there is no consumer surplus.

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