Explore BrainMass

# Second-Degree Price Discrimination Benefits

Not what you're looking for? Search our solutions OR ask your own Custom question.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Suppose that individual demand for a product is given by QD = 1000 - 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.

https://brainmass.com/economics/principles-of-mathematical-economics/second-degree-price-discrimination-benefits-543364

#### Solution Preview

a)
Qd = 1000 - 5P
Let P = 120
Qd = 1000 - 5(120)
Qd = 1000 - 600
Qd = 400

At a price of \$120, the consumer will buy 400 units.

Let P = 80
Qd = 1000 - 5(80)
Qd = 1000 - 400
Qd = 600

At a price ...

#### Solution Summary

Given the function of the demand curve for a product and a monopolist's Marginal Cost, this solution shows how second degree price discrimination in the form of a quantity discount can increase the firm's profits. All calculations are given and explained in full.

\$2.49