Answer to Question #193909 in Microeconomics for Faisal

Question

Problem 2 (Tracking, 5 points)

A monopolist sells a single good in two periods. There are two conumers who want to buy

one unit of the good in each period. The willingnessto pay of consumer A is 2, while the

willingness to pay of consumer B is 1.5.

a) Suppose the monopolist can only set one price in each period and cannot identify

consumers at all. What is the optimal price?

b) Suppose that the monoplist has indetified which consumers is A and B in period

two and can set different prices. What are the optimal prices?

c) Would the monoplist want to set a price of 2 in the first period, if he can identify

the consumer who bought the product in the next period. That is if he can track

who has bought in the first period. Assume for the moment that consumer A buys

in the first period at a price of 2.

Answer 1

a) If the monopolist cannot identify the customers, the optimal price that he can charge in period 1 would be $1.5 because this price will allow him to sell the product in both periods.

b) If the monopolist has identified a consumer who will buy a product in period 2, he is able to set a price in both the periods that can provide him maximum revenue.

• Suppose, if consumer A will buy in period 2, an optimal price that the monopolist will charge will be $1.5 in period 1 because consumer B has the willingness to pay of $1.5.
• Similarly, if Consumer B will buy in period 2, an optimal price that can be charged in period 2 would be $1.5

c) Here, it is given that if monopolist has identified that consumer A will buy in period 1, he will charge the price of $2 in this period. Yes, it is true because consumer A has the maximum willingness to pay of $2 for the good.