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game theory

1. BMW has MC=$20,000 and FC=$10billion. Demand for markets in Europe(e) and US(u) are Qe=4,000,000-100Pe and Qu=1,000,000-20Pu. Prices and Costs are in thousands. BMW can restrict US sales to authorized BMW dealers only.

a. What should be the quantity and price in each market.
b. What should be the total profit.
c. If they charge the same price in each market, what should be the quantity sold in each market, equilibrium price, total profit?

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Solution Summary

Pricing with market power is illustrated.