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[ A monopolist can exercise price discrimination. Price discrimination refers to the business practice of selling the same good at different prices to different customers. Let's assume a simple case that our monopolist's production costs are simply proportional to output, so that average total cost (ATC) and marginal cost (MC) are constant and equal.]
[Draw a figure with cost (average total cost and marginal cost), demand, and marginal revenue curves for the monopolist. Show and label the monopoly price and quantity without price discrimination in your figure. In your diagram, mark the area equal to monopolist's profit and call it X. Mark the area equal to consumer surplus and call it Y. Mark the area equal to deadweight loss and call it Z.]
[Now suppose that the monopolist can perfectly price discriminate. What is the monopolist's profit? What is the deadweight loss? (Give your answer in terms of X, Y and Z)]
[What is the change in the monopolist's profit from price discrimination? What is the change in total surplus from price discrimination? Which change in larger? Explain (Give your answer in terms of X, Y and Z)]
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