QUESTION 1African Braids & Beauty is a natural monopoly
in town, owned by Selina. Table 1 shows the demand schedule (the first two columns) and African Braids & Beauty’s marginal cost schedule (the second and third columns). African Braids & Beauty has done a survey and discovered that it has four types of customers each hour: one woman who is willing to pay $16, one concession holder who is willing to pay $14, one student who is willing to pay $12, and one girl who is willing to pay $10.Use Table 1 to answer questions (a), (b), (c) and (d) below:TABLE 1Price(dollars per hair braiding)(Column 1)Quantity(hair braidings per hour)(Column 2)Marginal cost(dollars per hour)(Column 3)180–161214251238104118514QUESTIONS:a) If Selina is a single-price monopolist, what price will she charge and how many hair braidings per hour will she sell? (Hint: construct and compute the Total Revenue and Marginal Revenue columns)? What is her total revenue? What is the market consumer surplus? (6 marks)b) If Selina price-discriminates, what is the price each type of customer is charged? How many hair braidings does Selina sell? What is the increase in her total revenue? (6 marks)c) Which customer benefits from Selina’s price discrimination? Is the outcome efficient? What happens to consumer surplus? (4 marks)d) If Selina finds a fifth customer willing to pay $8 for a hair braiding, should she sell to her? Why or why not? (4 marks)
