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Homework answers / question archive / A monopolist practices third degree price discrimination in two markets
A monopolist practices third degree price discrimination in two markets. The ratio of price to marginal cost in market 1 is 3. The price of the good in market 1 is equal to 100. The price of the good in market 2 is equal to 80. Determine the elasticity of demand with respect to price in the second market.
Please show your work so I can better understand the concept!
ans. -1.72
MR1 = P1 (1+1/E1)
so (1+1/E1) = 1/3
E1 = -3/2
This means that MR 1= 100 x (1+1/E1) = 33.33
In equilbrium, MR1 = MR2
MR2 = P2 (1+1/E2)
so 33.33 = P x (1+1/E2)
1+1/E2 = 33.33/80
1/E2 = 33.33/80 - 1 = -0.58
E2 = -1.72
