Chapter 4 Tutorial 1

This question tackles the decision on whether a monopolist should price discriminate if it has the freedom to do so. It is a long question so it’s gonna be interesting.

1. A theater for Stand-up Comedies has 2 types of customers. There are those who may watch the comedies at almost any price (although the number of visits depends on the price), and those who do not have a good sense of humor and watches it only if the price was below a certain level. The number of visits too depends on the price. The marginal cost for running the theater is constant.

a. Describe the demand facing the monopolist;

b. How would the monopolist decide on how to price the visit if he could distinguish between the 2 types of customers;

c. How would your answer change if the monopolist cannot distinguish between them;

d. In which case will the monopolist make greater profits? Explain your answer.




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Author: admin

7 Comments

  1. Nigel says:

    Hey dude,

    At 13:14 of this video. If area of gain is larger than area of loss, why are we still charging A type customers P2 instead of P1?

    Thanks.

    Nigel

  2. Nigel says:

    Hey dude,

    Pai sei. If price discrimination is not allowed (cannot be distinguished), for area of gain larger than area of loss, shouldn’t he sell Xo number of tickets to the enthusiastic crowd and (X2-Xo) to the people with no sense of humor?

  3. ella says:

    Hi,
    One question, it might soung trivial, but can you please clirify why the MC curve is a straight horizontal line?

    thanks

    ella

    • Quickienomics says:

      Hello. The MC is a straight line because the question states that the firm experiences constant marginal cost. This means that at every level of output, the marginal cost is the same. so if it costs $5 to increase production from 5 unit to 6 units, it also costs $5 to increase production from 1001 units to 1002 units.

  4. Ella says:

    Hi,

    Thank you very much for this!