ECN 100B Price Discrimination Question

Question Description

1 Price discrimination question

Imagine a firm called Bapple that is the monopoly in the market for smartwatches, with cost-function C(Q) = 3Q2. Imagine the inverse demand function for smartwatches is p(Q) = 400 ? 2Q.

1.1 A. What are equilibrium price and equilibrium quantity?

1.2 B. Show the equilibrium price and equilibrium quantity graph- ically. Include the inverse demand curve, firms marginal rev- enue curve, and firms marginal cost curve.

Now assume that Bapple is able to perfectly price discriminate in the market for smart- watches.

1.3 C. What three conditions must be true for this perfect price discrimination to be possible?

1.4 D. What are the equilibrium prices and equilibrium quantity with perfect price discrimination?

1.5 E. What are consumer surplus, producer surplus, and dead- weight loss at the perfect price discrimination equilibrium?

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