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A monopolist sells in two geographically divided markets, the East and the West. Marginal cost is constant at $50 in both markets (marginal cost is also equal to average total cost). The inverse demand curve in each market is as follows:

PE=450-.5QE

PW=700-QW

a) Find the profit-maximizing quantity, price and profit in each market.

b) In which market is demand more elastic?

c) Show what will happen to the monopolist's profit if it is to charge the same price in both markets (That is, profit if the monopolist treats the markets as if they are the same).

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Raushan Raj
Raushan RajLv8
28 Sep 2019

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Related questions

A monopolist sells in two geographically divided markets, East and West. The marginal cost is constant at $50 in both markets. Demand and marginal revenue in each market are as follows:

QE = 900 - 2PE

MRE = 450 - QE

QW = 700 - PW

MRW = 700 - 2QW

 

1. What is the profit-maximizing price in each market?

a) $250 in the West, $375 in the East.

b) $375 in the West, $250 in the East.

c) $325 in the West, $400 in the East.

d) $700 in the West, $900 in the East.

 

2. What is the total profit for this company, assuming there are no fixed costs?

Answer: _______________________

 

3. Is there a single price this firm could charge that would generate more profits than the above?

a) No, 3rd-degree price discrimination is the best they can do given the information they have.

b) Yes, but we don't know what it is.

c) Yes, they could use 1st-degree price discrimination.

d) Yes, the monopoly price.

Suppose a monopolist faces two markets with the following demand curves: Market 1: 𝐷1 (𝑝1 ) = 500 − 𝑝1 Market 2: 𝐷2 (𝑝2 ) = 800 − 4𝑝2 Let the marginal cost be $2 per unit in both markets.

A) If the monopolist can price discriminate, what should be 𝑝1 and 𝑝2 to maximize the monopolist’s profit?

B) What is the profit-maximizing price if the government requires the monopolist to charge the same price in each market?

C) How much profit does the monopolist lose from the government regulation in B), relative to the profit the monopolist would earn from being able to price discriminate in A)?

Question #6 (3rd Degree Price Discrimination)

A Monopolist selling a commodity I two separate markets must decide how much to sell in each market in order to maximize their total profits.

The demand in the Japanese Market is QJapan = 120 - 10PJapan

The demand in the United States Market is: QUSA = 120 - 20PUSA

If Total Cost is: TC = 90 + 2(QUSA +QJapan)

Calculate the Price and Quantity if the Monopolist Maximized their profit and sells in both markets? (6 Points)

Calculate the Profit if the monopolist Maximized their profit and sells in both markets? (6 Points)

 

In the absence of 3rd degree price discrimination, and the firm must sell at the same price in both markets, what is the price, quantity, and total profit? (6 Points)

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