Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

234 PRICE AND OUTPUT UNDER PURE MONOPOLY [CHAP. 9
an all-or-nothing offer to consumers to sell all four units of the commodity for $24. This represents the greatest
expenditure that consumers are willing to incur to obtain all four units of the commodity rather than give up
this commodity entirely.
9.22 (a) Compare the TR of the monopolist in Problem 9.21 when she sells four units of the commodity and
practices first-degree price discrimination with the TR when she continues to sell four units of the commodity
but does not practice price discrimination. (b) For the monopolist in Problem 9.21, find the
difference between what consumers are willing to pay and what they actually pay (in the absence of
price discrimination). How is this difference represented geometrically?
(a)
(b)
In the absence of price discrimination, if this monopolist wants to sell four units of the commodity, she would
charge a price of $4 per unit and the TR would be $16 (see Fig.9-24). Thus, by practicing first-degree price
discrimination, this monopolist can increase her TR from $16 to $24.
The difference between what consumers are willing to pay (and end up paying with first-degree price discrimination)
and what they would actually pay in the absence of price discrimination is called consumers’ surplus.
In the above case, the consumers’ surplus is $8 ($24 minus $16) and is given (in Fig. 9-24) by the area under
the straight-line D curve and above the price of $4 (which is equal to the area of the four rectangles above
the price of $4). Thus, by practicing first-degree price discrimination, the monopolist is able to extract
from consumers all of the consumers’ surplus.
9.23 In second-degree price discrimination, the monopolist sets a uniform price per unit for a specific quantity
of the commodity, a lower price per unit for a specific additional batch of the commodity, and so on.
(a) If the monopolist in Problem 9.21 sets a price of $6.50 on each of the first two units and a price of
$4.50 on each of the next two units of the commodity, what proportion of the consumers’ surplus would
this monopolist be extracting from consumers? (b) What if the monopolist set the price at $6 for the first
two units and $4 for the next two units?
(a)
(b)
The monopolist’s TR would be $22($13 þ $9), and the monopolist would thus be extracting from consumers
three-fourths of the consumer’s surplus (see Fig. 9-24).
The TR would be $20 and the monopolist would be extracting from consumers half of the consumers’ surplus
(see Fig. 9-24).
9.24 If a monopolist faced a D function given by QD ¼ 12 2 P,(a) what would be the monopolist’s TR upon
selling six units of the commodity? (b) What would be the TR if the monopolist practiced first-degree
price discrimination? How much of the consumers’ surplus would the monopolist take? (c) If the monopolist
sold the first three units of the commodity at a price of $9 per unit and the next three units at a price
of $6 per unit, how much of the consumers’ surplus would the monopolist take?
(a)
If the unregulated monopolist sold six units of the commodity (which the monopolist would do only if the
MC ¼ 0), the TR would be $36. This is shown by the area of rectangle BCOF in Fig. 9-25.
Fig. 9-25