Question :

i) Consider a discriminating monopolist is selling a product in two separate markets in which demand functions are:

P₁ = 6 - Q₁
P₂ = 18 - 2Q₂

The monopolist's total cost function is: TC = 5 + 2Q. Consider you have been employed as the adviser. You are asked to evaluate the prices to be charged in the two markets and amount to be sold in each market so that profits are maximized. You are asked to determine the total profits to be made from the strategy of price discrimination. What advise will you give?

ii) What are the sources of mononpoly?

iii) How can a monopolist deter rivals from entering the market?

iv) Briefly explain the policies which the government can use to correct for externalities which are created by business activities.