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Questions › DSE › DSE 2015 › Q23
2 marks, −0.666666666666667Microeconomics › Monopoly and price discrimination › First- and second-degree price discrimination and two-part tariffsModerateabout 3 min

DSE 2015 Question 23: Monopoly and price discrimination

A monopoly electricity supplier has unit cost ccc. Type-iii utility is ui(q,t)=θiln⁡(1+q)−tu_i(q,t)=\theta_i\ln(1+q)-tui​(q,t)=θi​ln(1+q)−t (qqq consumption, ttt tariff), with θH>θL>c\theta_H>\theta_L>cθH​>θL​>c. If the supplier can observe each consumer's type and offers (qH,tH)(q_H,t_H)(qH​,tH​) to high types and (qL,tL)(q_L,t_L)(qL​,tL​) to low types, the profit-maximizing tariffs are

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A monopoly electricity supplier has unit cost c. Type- i utility is uᵢ(q,t)=θᵢln (1+q)-t (q consumption, t tariff), with θ_H>θ_L>c. If the supplier can observe each consumer's type and offers (q_H,t_H) to high types and (q_L,t_L) to low types, the profit-maximizing tariffs are (A) t_H=cln (θ_H/c) and t_L=cln (θ_L/c) (B) t_H=θ_Hln (θ_H/c) and t_L=0 (C) t_H=θ_Hln (θ_H/c) and t_L=θ_Lln (θ_L/c) (D) t_H=t_L=cln ((θ_H+θ_L)/c)

Also written as: A monopoly electricity supplier has unit cost c. Type- i utility is u_i(q,t)=theta_iln (1+q)-t (q consumption, t tariff), with theta_H>theta_L>c. If the supplier can observe each consumer's type and offers (q_H,t_H) to high types and (q_L,t_L) to low types, the profit-maximizing tariffs are

Monopoly and price discrimination has come up 128 times in 7 exams since 2004.

What this question tests

This question is on First- and second-degree price discrimination and two-part tariffs, part of Monopoly and price discrimination in Microeconomics.

Charging different prices by consumer or by quantity, up to perfect discrimination and two-part tariffs.

TestStop has 19 past-paper questions on this subtopic.

Practise Monopoly and price discriminationMore on First- and second-degree price discrimination and two-part tariffs

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