A firm has the cost function: TC = Q² It sells its goods in two markets with different demands:
QA = 330 - 2PA & QB = 510 - 4PB
a) If the firm can practice third-degree price discrimination, how much will the firm produce? What will be the optimal price and quantity in each market?
b) Under first-degree price discrimination, how does the relationship between demand and marginal revenue change? What happens to output and profits, to social, consumer and producer surpluses and deadweight loss? (No calculations required.)
c) What are the conditions for Pareto efficiency? Are they met in the two cases above, if the only other industry in this economy, and all factor markets, are perfectly competitive?