There are 2 types of widget consumers in Boston. Type 1 consumers have (aggregate of all type 1) demand given by Q(1) = 100 – p. Type 2 consumers have (aggregate) demand given by Q(2) = 110 – p/2. The cost of producing widgets is TC = 1/2Q2, where Q is the total number of widgets produced. Assume that the producer of widgets behaves as a monopolist. 1. Suppose that the producer cannot distinguish between the two types of consumers. What price will it charge? What is the elasticity of demand at that point?
2. Now assume that the monopolist can distinguish between the two types of consumers. a. How many widgets will the monopolist sell to each group of consumers and how much will it charge them? b. What are the elasticities of demand at the optimal points for the two types of consumers. Explain.