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Question 3 [20 Marks a) Assume a monopolist with marginal costs of 4 and no fixed cost seils to two different groups of consumers. Each group has ten consumers. Individual demand of consumers in group A is given by q.(P) = 20 - P and for consumers in group B by q.(P) = 16 - P. i. Suppose the monopolist cannot prevent arbitrage. Is price discrimination possible? Calculate the market output(s), price(s) and profits. [3 Marks) ii. Suppose the monopolist can prevent arbitrage but does not know the type of consumers. Is price discrimination possible? Calculate the market output(s), price(s) and profits. [3 Marks] iii. Suppose the monopolist can prevent arbitrage between groups but not within. Is price discrimination possible? Calculate the market output(s), price(s) and profits. [3 Marks] iv. Suppose the monopolist can identify consumers and prevent arbitrage both between and within groups. Is price discrimination possible? Calculate the market output(s), price(s) and profits. [3 Marks) b) Compare the welfare implications of perfect competition and monopoly market. Under what circumstances will monopoly be desirable in terms of social welfare? [5 Marks] c) Show that the price discriminating monopolist will charge a higher price and sell a lower quantity in the low elastic market [3 Marks]
The production function of Qalitec Signs and Display Limited is given by Q = 100L0.5 x 0.5, where Q is the quantity of signs and LCD displays produced per annum, L is the labour input and K is the capital input. i. Does the production function of Qalitec exhibit diminishing marginal returns? ii. Does the production function exhibit decreasing returns to scale? iii. Briefly distinguish between internal economies of scale and external economies of scale. iv. Briefly explain the main factors that account for production economies of scale.