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

Under perfect price discrimination, the monopolist charges each consumer their maximum willingness to pay for the product, resulting in capturing all of the consumer surplus. Thus, the monopolist will sell the quantity at which marginal cost equals the highest willingness-to-pay of any consumer. In this case, that occurs at a quantity of 900 units (where P = 50 - 0.1Q equals $20, the marginal cost). Therefore, the monopolist would sell 900 units and make a profit of $17,000 ($50 x 900 = $45,000 - $2 x 900 - $1,000).

A Monopolist Faces the Following Demand Curve: the Monopolist