Question

Suppose that a price-searcher firm had consumers who were all identical to each other. The individual consumer's demand function is given by: qD= 20-5P. The firm decides to try a second-degree price discrimination scheme. The first 8 units will have a price of $2.40. After that, any units a consumer purchases will be only $1.00. The firm has a constant marginal cost of $0.80 per unit. Calculate the firm's producer surplus. (Do not include a "$" sign in your response. Round to the nearest two decimal places if necessary.)

Answer 1

Answer:

producer surplus 14.2 dollars

Explanation:

The producer surplus will be the area above the marginal cost and the sales price:

Marginal cost: will be 0.8 regardles of the quantity

The demand line is build with the formula given: Qd = 20-5p

and then we stablish the price as state 2.4 for the first 8 units and 1 dollar from that point

As it met the demand curve in 15 units there will be sales for 15 units the first at 8 and the remainder 7 at 1 dollar

Producer surplus:

(2.4 - 0.8) x 8 + (1 - 0.8) * 7  = 14.2