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Questions › DSE › DSE 2021 › Q26
4 marks, −1Microeconomics › Monopoly and price discrimination › Taxes and monopolyHardabout 3 min

DSE 2021 Question 26: Monopoly and price discrimination

'ABC Cinemas' is the monopolist in a town. Demand to see a movie is Q=100−10pQ = 100 - 10pQ=100−10p in the afternoon and Q=200−10pQ = 200 - 10pQ=200−10p in the evening, where ppp is the ticket price. Currently the movie distributor charges Rs 4 per ticket sold by ABC Cinemas. Suppose instead the distributor asks ABC to pay a flat fee of Rs XXX to show the movie, with no charge per customer. Find the value of XXX such that ABC will be indifferent between the current 'pay per ticket' contract and the 'fixed pay' contract. (ABC incurs no cost other than its payment to the distributor.)

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'ABC Cinemas' is the monopolist in a town. Demand to see a movie is Q = 100 - 10p in the afternoon and Q = 200 - 10p in the evening, where p is the ticket price. Currently the movie distributor charges Rs 4 per ticket sold by ABC Cinemas. Suppose instead the distributor asks ABC to pay a flat fee of Rs X to show the movie, with no charge per customer. Find the value of X such that ABC will be indifferent between the current 'pay per ticket' contract and the 'fixed pay' contract. (ABC incurs no cost other than its payment to the distributor.) (A) 'Pay per ticket' contract is always better (B) 'Fixed pay' contract is always better (C) X = 520 (D) X = 180

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

What this question tests

This question is on Taxes and monopoly, part of Monopoly and price discrimination in Microeconomics.

How a specific tax or a profit tax passes through to the price of a monopolised good.

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Question from the DSE 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.