Crazy Harry, a monopolist, has a total cost curve given by TC = 5Q + 15. He sets two prices for his product, a regular price, PH, and a discount price, PL. Everyone is eligible to purchase the product at PH. To be eligible to buy at PL, it is necessary to present a copy of the latest Crazy Harry newspaper ad to the salesclerk. Suppose the only buyers who present the ad are those who would not have been willing to buy the product at PH.
a. If Crazy Harry’s demand curve is given by P = 20 - 5Q, what are the profit- maximizing values of PH and PL ?
b. How much economic profit does Harry make?
c. How much profit would he have made if he had been forced to charge the same price to all buyers?
d. Are buyers better or worse off as a result of Harry’s being able to charge two prices?

  • CreatedDecember 12, 2014
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