Ann McCutcheon is hired as a consultant to a firm producing ball bearings. This firm sells in two distinct markets, each of which is completely sealed off from the other. The demand curve for the firm's output in the first market is P1 =160 - 8Q1, where P1 is the price of the product and Q1 is the amount sold in the first market. The demand curve for the firm's output in the second market is
P2 = 80 - 2Q2, where P2 is the price of the product and Q2 is the amount sold in the second market. The firm's marginal cost curve is 5 + Q, where Q is the firm's entire output (destined for either market). Managers ask Ann McCutcheon to suggest a pricing policy.
a. How many units of output should she tell managers to sell in the second market?
b. How many units of output should she tell managers to sell in the first market?
c. What price should managers charge in each market?
160 - 16Q1 = 5 + (Q1 + Q2); 80 - 4Q2 = 5 + (Q1 + Q2); 155 - 17Q1 = Q2; 75 - ...
This solution calculates units of output in the second market, units of output in the first market, and the price managers should charge in each market.