Suppose a profit-maximizing monopolist producing Q units of output faces the demand curve P = 20 - Q. Its total cost when producing Q units of output is TC = 24 + Q2. The fixed cost is sunk, and the marginal cost curve is MC = 2Q.
a) If price discrimination is impossible, how large will the profit be? How large will the producer surplus be?
b) Suppose the firm can engage in perfect first-degree price discrimination. How large will the profit be? How large is the producer surplus?
c) How much extra surplus does the producer capture when it can engage in first-degree price discrimination instead of charging a uniform price?