Suppose a fruit stand owner has the demand curve and marginal cost curve below:
P
Fruit
P
Fruit
D
Q
MC
D
(1) Assume the fruit stand owner can only charge one price for his produce. Draw a (roughly
accurate) marginal revenue curve on the left-hand side graph.
Indicate optimal quantity,
optimal price, and shade the profits (i.e. total revenue less cost) of the
owner (assuming
only
variable costs of output).
(2) Now assume the fruit stand owner can charge a different price to each buyer and that,
moreover, he is very astute and can charge each customer
their maximum willingness
to pay. In
other words, he engages in perfect price discrimination. Indicate the
optimal quantity of output
and shade the owner's profits under this scenario.
0
MC
Activa
Go to S
(3) Who gains and who loses as a result of this perfect price discrimination (i.e. compare the left
graph to right graph)? Is there a net gain or net loss across
buyers and sellers?