Market evenly split between high valuation consumers

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A mononopoly faces a market evenly split between high valuation consumers, with demand P = 4 - 0.5y, and low valuation consumers with demand P = 3 - 0.75y. Suppose the firm has MC = 0.

1) Suppose the firm is free to use two-part tariffs as a pricing scheme. Determine the firm's best second-degree price discrimination and use a graph to justify.

2) a) Now suppose the firm is using a third-degree price discrimination. Determine the firm's profit maximization for this price scheme for each market.

b) At this outcome, in which market does the firm operate at higher point elasticity? Why?

Reference no: EM13886949

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