Suppose a monopolist produces oil in one factory but sells it in two cities. In each city she faces the same inverse demand function , where is strictly decreasing and strictly concave. The cost function is increasing and convex in total quantity. She currently sells units per month in city A and units per month in city B, where . Which of the following choices will increase her profit?
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Suppose a monopolist produces oil in one factory but sells it in two cities. In each city she faces the same inverse demand function p = f(q), where f is strictly decreasing and strictly concave. The cost function is increasing and convex in total quantity. She currently sells q₁ units per month in city A and q₂ units per month in city B, where q₁ < q₂. Which of the following choices will increase her profit? (A) Sell (q₁ + q₂) units per month in city B and nothing in city A (B) Sell (q₁ + q₂) units per month in city A and nothing in city B (C) Sell (q₁ + q₂)/2 units per month in each city (D) Sell q₂ units per month in city A and q₁ units per month in city B
Also written as: Suppose a monopolist produces oil in one factory but sells it in two cities. In each city she faces the same inverse demand function p = f(q), where f is strictly decreasing and strictly concave. The cost function is increasing and convex in total quantity. She currently sells q_1 units per month in city A and q_2 units per month in city B, where q_1 < q_2. Which of the following choices will increase her profit?
Monopoly and price discrimination has come up 128 times in 7 exams since 2004.
This question is on Third-degree price discrimination, part of Monopoly and price discrimination in Microeconomics.
Charging different groups different prices, and how elasticities decide which group pays more.
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Question from the DSE 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.