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Optimal markups and prices under third-degree

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Reference no: EM132592559

You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1's elasticity of demand is -5, while group 2's is -3. Your marginal cost of producing the product is $40.

a. Determine your optimal markups and prices under third-degree price discrimination.  

Instructions: Enter your responses rounded to two decimal places.

Markup for group 1: 

Price for group 1: $ 

Markup for group 2: 

Price for group 2: $ 

b. Which of the following are necessary conditions for third-degree price discrimination to enhance profits.

  • We are able to prevent resale between the groups.
  • There are two different groups with different (and identifiable) elasticities of demand.
  • At least one group has elasticity of demand greater than 1 in absolute value.
  • At least one group has elasticity of demand less than one in absolute value.

Reference no: EM132592559

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