A monopolist has discovered that the inverse demand function of a person with income M for the monopolist's product is p = .002 M -0 q.The monopolist is able to observe the incomes of its consumers and to practice price discrimination according to income (second-degree price discrimination).The monopolist has a total cost function, c(q)= 100q.The price it will charge a consumer depends on the consumer's income, M, according to the formula A)p = .001 M + 50. B)p = .002 M - 100. C)p = M ². D)p = .01 M ² + 100. E)None of the above.

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The monopolist will charge a price equal to marginal cost, which is 100. The inverse demand function is p = .002 M -0 q, so the monopolist will charge a price of p = .002 M + 100.

A Monopolist Has Discovered That the Inverse Demand Function of a Person