SECTION OVERVIEW: This last microeconomic section presents “advanced topics in managerial
economics.” We analyze how firms may make alternative pricing decisions to our standard
single-price, MR=MC rule. Chapter 14 examines pricing under market segmentation and
when the firm produces multiple products. Chapter 16 examines the impact that government
regulation can have on business, usually to counteract situations where firms exercise market
power or where market failures exist.
LEARNING GOALS: Upon completing this section, we will understand the various forms of price
discrimination and when they may allow a firm to reap more profit than uniform pricing. We
will also analyze pricing decisions for firms that produce products related in consumption in
contrast to single-product production or firms producing multiple but unrelated products. We
will understand how markets may or may not exhibit efficiency, and how government
intervention can correct market failure.

1. The following shows the demands and marginal revenue in two markets, 1 and 2, for a price
discriminating firm along with total marginal revenue, MRT, and marginal cost MC. For reference, P1 = 160 – 0.2Q and P2 = 100 – 0.2Q.
a. Compare the demand conditions in each market; i.e. how do the two markets differ in
their demand for the firm’s product?
b. How much total output should the firm produce (for both markets combined)? How
should that output be allocated between markets 1 and 2? (It would be easiest to copy and ECON 705 Assignment 7 End-of Module Assessment due: Dec. 10th, 11:59pm paste the picture above and draw directly on the picture using Insert, Shapes to do parts
b and c.)
c. What price should the firm charge in each market?

3. Shaughnessy Consulting, LLC currently enjoys a patent on software that estimates economic
damages for clients involved in personal injury lawsuits. Demand for my software is
QD = 80 – 2P. Creating the software cost me about $2,000 in development and coding. I can
produce a copy of the software for $2 per unit (constant cost).
a. How many copies of the software should I attempt to sell? At what price should I sell it?
How much profit would I make?
b. My patent expires in a year, and I know other economic consultants will produce
competing software. What quantity and price will result once competing software
emerges? How much consumer surplus will my clients (lawyers) gain once the
competitors enter? (For measuring consumer surplus, recall that area of a triangle = ½ *
base * height.)
c. How much deadweight loss is created by my patent and monopoly in this software?