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

When the monopolist perfectly price discriminates, it charges each consumer their exact willingness to pay, resulting in no consumer surplus. Therefore, the monopolist captures all the surplus and faces a perfectly elastic demand curve at the marginal cost of production. The monopolist's profit-maximizing output, in this case, can be obtained by equating marginal revenue to marginal cost. 
MR = MC  
$150 - $0.003Q = $2 
Solving this equation gives us the output as Q = 49,666. 
Therefore, the number of units of output the monopolist would sell is 900.

A Monopolist Faces the Following Demand Curve: the Monopolist