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You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Analysts at your firm have determined that group 1’s elasticity of demand is −4, while group 2’s is −3. Your marginal cost of producing the product is $20.

You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Analysts at your firm have determined that group 1’s elasticity of demand is −4, while group 2’s is −3. Your marginal cost of producing the product is $20.

a. Determine your optimal markups and prices under third-degree price discrimination.

Instructions: Enter your responses rounded to two decimal places.

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Markup for group 1:

 

Price for group 1: $
Markup for group 2:

 

Price for group 2: $

b. Which of the following are necessary conditions for third-degree price discrimination to enhance profits.

Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to place a check mark. For incorrect answer(s), click twice to empty the box.
check all that apply

  • At least one group has elasticity of demand greater than 1 in absolute value.
  • There are two different groups with different (and identifiable) elasticities of demand.
  • At least one group has elasticity of demand less than one in absolute value.
  • We are able to prevent resale between the groups.

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"FIRST15"

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