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    Third degree price discrimination

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    Third degree price discrimination: A firm is a monopoly in two markets. The demand function in market 1 is p1 = 2 - q1 and p2 = 1 - q2 in market 2. The cost function is C (Q) = 2Q2: Will the firm be willing to serve market 2?

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    Solution Preview

    The monopoly chooses to charge the different prices to different group of consumers at where MR = MC in each market,
    Market 1:
    P1 =2 -q1
    TR1 = P1*q1
    = (2- q1)*q1
    =2q1- q1^2
    MR1 = ∂TR1/∂q1
    =2 ...

    Solution Summary

    Third degree price discrimination is typified.