Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 12

You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1's elasticity of demand is -3, while group 2's is -5. Your marginal cost of producing the product is $40.
a. Determine your optimal markups and prices under third-degree price discrimination.
b. Identify the conditions under which third-degree price discrimination enhances profits.