Abacus, Inc. provides accounting services to a wide variety of customers, most of whom have had a business association with Abacus for more than five years. These long- standing relationships give Abacus a unique ability to provide comprehensive accounting services for its customers-no other firm could provide the same services because they lack data about past performance. Abacus' demand and marginal revenue curves are:
P =10,000-10Q M R = 10, 000 - 20Q
Abacus' marginal cost of service is:
MC = 5Q
- If Abacus charges a uniform price for a unit of accounting service (Q), what price must it charge per unit, and how many units must it produce per time period in order to maximize profit? Calculate the consumer surplus.
- If Abacus could enforce first-degree price discrimination, what would be the lowest price that it would charge and how many units would it produce per time period?
- With perfect price discrimination and ignoring any fixed cost, what is total profit? How much additional consumer surplus is captured by switching from a uniform price to first-degree price discrimination?