Answer:
c. price = $150; profit = $450,000
c. $850,000
b. $400,000
the dead-weight loss would be the loss in consumer or producer surplus as they didin't enter the trade.
Explanation:
A)
revenue exploiting the die-hard fans:
150 x 4,000 = 600,000
revenue to get 100% market
24,000 x 20 = 480,000
It is a better idea to charge $150 as it provides more contribution.
If it can discriminate:
150 x 4,000 = 600,000
+ 20,000 x 20 = 400,000
total of 1,000,000 from revenues less 150,000 cost:
850,000 profit
Profit in case 1 , Profit in case 2 and Dead weight loss are $450,000 , $850,000 and $400,000
Case1 ;
Monopoly will charge the highest price possible in order to maximize profit. There is no differential pricing because there is no differential pricing. Only 4,000 people will sign up for the increased costs.
So,
Price = $150
Profit = ($150 × 4,000) - $150,000
Profit = ($600,000 - $150,000 )
Profit = $450,000
So, Option "C" is the correct answer to the following question.
Case2 ;
Monopoly will charge the highest price possible in order to maximize profit. There is no differential pricing because there is no differential pricing. Only 4000 people will sign up for the increased costs.
Profit = [(4,000 × $150) + (20,000 × $20)] - $150,000
Profit = $850,000
So, Option "C" is the correct answer to the following question.
Case3 ;
Dead weight loss is the loss where monopoly produces less than the optimum level of output required in the economy.
Dead weight loss = 20,000 × $20
Dead weight loss = $400,000
So, Option "B" is the correct answer to the following question.
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