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Suppose that
individual demand for a product is given by Q = 1200 – 5P. Marginal revenue
is
MR = 200 – 0.4Q, and marginal
cost is constant at $ 20. There are no fixed costs.
a. The firm is
considering a quantity discount. The first 400 units can be purchased at a
price of $120, and further units can be purchased at a price of $80. How many
units will the consumer buy in total?
b. Show that this
second- degree price- discrimination scheme is more profitable than a single
monopoly price.
