A monopoly producer of music videos sells them to TV stations and to individual consumers. Because TV stations have special formatting and quality requirements, producers can separate these two markets and sell essentially the same product at two different prices. You are given the following demand curves per year for these distinct markets: TV stations: P1 = 80 - 0.01Q1 Individual consumers: P2 = 60 - 0.01Q2 where P refers to prices charged to each group and Q refers to quantities demanded by each group. The variable cost of producing music videos (once the video has been shot) is uniform at €4 per video. In addition, there are sunk fixed costs of €20,000 for the shooting of each music video (for design, promotion and hiring artists). 3.1. If the producer of music videos can price discriminate by charging different prices to each group, determine the profit-maximizing price charged to TV stations and to individual consumers. 3.2. Assume now that the monopoly producer of music videos is unable to discriminate between these groups but must sell at a uniform price. What price will now be charged? 3.3. Calculate the demand price elasticities at the profit maximizing Q and P levels: show that the prices ratio equals the MRs ratio (where MRs are expressed as a function of demand price elasticities)
A
TV stations have special formatting and quality requirements, producers can separate these two markets and sell
essentially the same product at two different prices. You are given the following demand curves per year for these
distinct markets:
TV stations: P1 = 80 - 0.01Q1
Individual consumers: P2 = 60 - 0.01Q2
where P refers to prices charged to each group and Q refers to quantities demanded by each group. The variable cost
of producing music videos (once the video has been shot) is uniform at €4 per video. In addition, there are sunk fixed
costs of €20,000 for the shooting of each music video (for design, promotion and hiring artists).
3.1. If the producer of music videos can
profit-maximizing price charged to TV stations and to individual consumers.
3.2. Assume now that the monopoly producer of music videos is unable to discriminate between these groups but
must sell at a uniform price. What price will now be charged?
3.3. Calculate the demand price elasticities at the profit maximizing Q and P levels: show that the prices ratio equals
the MRs ratio (where MRs are expressed as a function of demand price elasticities)
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