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If a monopolist discovers that the market quantity demanded at a price of $20 is 3000 and the quantity demanded at a price of $18 is 3600, then the monopolist would engage in __________________ price discrimination and earn higher profit by: ____________________.

A) First degree; Charging all consumers a price of $20 and selling 3000 units.

B) Third degree; Charging all consumers $18 in order to increase quantity sold to 3600.

C) Second; Selling 3000 units for $18 each, then selling an additional 600 units for $20 each.

D) Second; Selling 3000 units for $20 each, then selling an additional 600 units for $18 each.

Answer :

To answer this question, let's first understand what each type of price discrimination means and how it applies to the monopolist's situation:

  1. First-degree price discrimination (also known as perfect price discrimination) occurs when a monopolist charges each consumer exactly what they are willing to pay. This means capturing all consumer surplus as profit by setting prices specific to individual consumers. This choice would not apply here as there is no information about individual consumer willingness to pay.

  2. Second-degree price discrimination involves charging different prices based on the quantity consumed or type of product but not based on consumer identity. This often looks like bulk discounts or different price tiers for different quantities purchased.

  3. Third-degree price discrimination is when different consumer groups are charged different prices based on their elasticity of demand. Each group is distinctly separate, such as by age, location, or income.

Now, let's consider the options:

  • Option A suggests first-degree price discrimination, but it implies charging a single price ($20) to all consumers, which isn't first-degree but rather typical uniform pricing.

  • Option B suggests third-degree price discrimination by reducing the price to $18 uniformly. However, since all consumers are charged the exact same price, this isn't third-degree price discrimination.

  • Option C suggests second-degree price discrimination by selling different quantities at different prices, but here, additional units are sold at a higher price ($20), which isn't economically sensible given a lower-priced option is available.

  • Option D suggests second-degree price discrimination by selling the initial 3000 units at $20 each, and the additional 600 units at $18 each. This seems logical as higher demand allows the remaining units to be sold at a lower price, which could maximize profits.

Thus, the correct answer choice is D) Second; Selling 3000 units for $20 each, then selling an additional 600 units for $18 each. This strategy allows the monopolist to maximize profit by capturing consumer surplus from the higher demand at the $18 price point for additional units.

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