Sub: Economics Topic: Micro Economics

Question:

Calculate sales quantity and price with different demand function under price
discrimination and show what happens to results if there should be same price.

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A firm with costs C(Q) = 1,000 + 60Q + 0.1Q2 is able to price-discriminate between two groups
of customers, with demands Q1 = 3,000 - 2p, and Q2 = 350 − 0.5p respectively. How much does
it sell to each group, and at what price? What would happen if it were forced to charge all its
customers the same price?

Solution:

P1-price charged to first group.

P2- price charged to second group.

Therefore P1=1500 – (Q1)/2

P2=700 – 2*Q2
TR1 = 1500Q1 – {(Q1)^2}/2
TR2 = 700Q2 – 2*(Q2)^2
MR1=1500 - Q1
MR2=700 - 4Q2
MC=60+0.2Q= 60+0.2(Q1+Q2)

In equilibrium MR1=MR2=MC
We get a set of simultaneous equations in terms of Q1 and Q2. On solving we get Q1 = 1184
Q2 = 96
=> P1= 908 and P2 = 508

If the firm is forced to sell at same price then

Aggregate Demand—Q1+Q2= Q = 3350 – 2.5P

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 Sub: Economics Topic: Micro Economics

P=1340 – 0.4Q

TR=PQ=1340Q - 0.4(Q^2)

MR=1340 – 0.8Q

MC=60 + 0.2Q
In equilibrium MR=MC gives
1340 – 0.8Q=60 + 0.2Q
=> Q=1280
P= 828

** End of the Solution **

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Finance, Marketing, Statistics, Economics and others. Check out more solved problems in our Solution Library.

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*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
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