Explore BrainMass

Second-Degree Price Discrimination Benefits

This content was STOLEN 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.

© BrainMass Inc. brainmass.com October 25, 2018, 8:31 am ad1c9bdddf

Solution Preview

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.

See Also This Related BrainMass Solution

Define price discrimination, creating & capturing value, economies of scope

1) Define the different degrees of price discrimination. Provide one real world example for each.

2) Define the concepts of creating and capturing value. Which is easier to accomplish?

3) Define economies of scope. Provide two real world examples.

View Full Posting Details