A monopolist faces the following demand curve:
The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit.If the monopolist were able to perfectly price discriminate,how many units would it sell?

Question

A monopolist faces the following demand curve: 
The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit.If the monopolist were able to perfectly price discriminate,how many units would it sell?

Quizplus · Accepted Answer

In perfect price discrimination, the monopolist charges each consumer the maximum price they are willing to pay. This means that the monopolist will be able to sell all 900 units at the highest possible price of $12. Therefore, total revenue would be $10,800 (900 x $12). Subtracting the total variable cost of producing 900 units ($1,800 = 900 x $2) from this revenue, we get a profit of $9,000 ($10,800 - $1,800). This is greater than the profit the monopolist would earn by producing and selling any other quantity. Therefore, 900 units is the optimal quantity for the monopolist to produce and sell under perfect price discrimination.

A Monopolist Faces the Following Demand Curve