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A Monopolist Would Like to Practice Third-Degree Price Discrimination

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Essay

A monopolist would like to practice third-degree price discrimination. Its first group of customers is represented by the demand equation, QD1 = 10 - P1. The second group is represented by the demand equation, QD2 = 10 - 2P2. Assume marginal costs of $4 in both markets. Compare the profit the monopolist would make as a single-price monopolist to what it would earn with third-degree price discrimination. Based on your calculations, does it make sense for this monopolist to price discriminate?


Definitions:

Galvanometer

A meter movement requiring microamperes to cause a full-scale deflection. Many galvanometers have a zero center, which permits them to measure both positive and negative values.

Digital Ammeter

An instrument used to measure electric current flow in a circuit, displaying the value digitally for accuracy and ease of reading.

Voltmeter

An instrument used for measuring the electrical potential difference between two points in an electric circuit.

Clamp-on Ammeter

A measuring instrument that can measure the current flow in a conductor without requiring any physical contact or disconnecting the circuit.

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