The graph to the right represents the linear demand curve for each identical consumer in a market that a monopoly faces. Using nonlinear price discrimination analysis, suppose that the monopoly can make consumers a take-it-or-leave-it offer. Suppose the monopoly sets a price, p*, and a minimum quantity, Q*, that a consumer must pay to be able to purchase any units at all. What price and minimum quantity should it set to achieve the same outcome as it would if it perfectly price discriminated? The price should be $ and the minimum quantity is 100 90- 80- 70- 60- 50- 40- 30- 20- 10- 0- 0 P, $ per unit 10 20 MR 30 40 50 60 70 Q, Units per day 80 MC D 90 100

The graph to the right represents the linear demand curve for each identical consumer in a market that a monopoly faces. Using nonlinear price discrimination analysis, suppose that the monopoly can make consumers a take-it-or-leave-it offer. Suppose the monopoly sets a price, p, and a minimum quantity, Q, that a consumer must pay to be able to purchase any units at all. What price and minimum quantity should it set to achieve the same outcome as it would if it perfectly price discriminated? The price should be $ and the minimum quantity is 100 90- 80- 70- 60- 50- 40- 30- 20- 10- 0- 0 P, $ per unit 10 20 MR 30 40 50 60 70 Q, Units per day 80 MC D 90 100

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.6P

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Assume that the demand for electric cars is p = 100-q (where q is the quantity and p is the price), and that an innovation can reduce the constant marginal cost of production from 70 to 60. What is the definition of nondrastic/drastic innovation? Confirm that the innovation for electric cars is nondrastic. Show that marginalcost would have to be reduced to less than 40 for theinnovation to bedrastic. Suppose that the industry is a monopoly (not threatened by entry). Howmuch is this firm willing to pay to acquire the innovation?
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