DSE 2021 Question 25: Monopoly and price discrimination
A monopolist sells hand-embroidered Pashmina shawls to two types of customers: 'Rich' and 'Middle Income' (values in thousands of Rs). Rich customers value at most two shawls: the first at 50 and the marginal value of the second at 30. Middle Income customers want at most one shawl, valued at 35. There are 50 Rich and 100 Middle Income customers. Cost of production is 25 per shawl. The monopolist cannot distinguish the two types. She adopts the scheme: a two-shawl package priced at p2, and a single shawl priced at p1. What are the profit-maximising prices?
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A monopolist sells hand-embroidered Pashmina shawls to two types of customers: 'Rich' and 'Middle Income' (values in thousands of Rs). Rich customers value at most two shawls: the first at 50 and the marginal value of the second at 30. Middle Income customers want at most one shawl, valued at 35. There are 50 Rich and 100 Middle Income customers. Cost of production is 25 per shawl. The monopolist cannot distinguish the two types. She adopts the scheme: a two-shawl package priced at p₂, and a single shawl priced at p₁. What are the profit-maximising prices? (A) p₁ = 35,000 and p₂ = 65,000 (B) p₁ = 35,000 and p₂ = 50,000 (C) p₁ = 25,000 and p₂ = 65,000 (D) p₁ = 50,000 and p₂ = 80,000
Also written as: A monopolist sells hand-embroidered Pashmina shawls to two types of customers: 'Rich' and 'Middle Income' (values in thousands of Rs). Rich customers value at most two shawls: the first at 50 and the marginal value of the second at 30. Middle Income customers want at most one shawl, valued at 35. There are 50 Rich and 100 Middle Income customers. Cost of production is 25 per shawl. The monopolist cannot distinguish the two types. She adopts the scheme: a two-shawl package priced at p_2, and a single shawl priced at p_1. What are the profit-maximising prices?
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.
