A monopolist can sell in two markets defined by: QA = 5500- lOOPA and QB = 18000 - 400PB
a) If the monopolist charges different prices in each market, what is this practice called?

b) It costs the firm $20,000 even if it produces nothing, and $15 for every unit above that. FInd the price and quantity sold in each market. WHat is the firm profit?

c) Now the firn has access a new technology with no fixed costs but increasing marginal cost MC = .1Q. find the price and quantity sold in each market. How much will the firm produce with each technology? what is the firm's profit?

Solution Preview

The two demand curves are:

QA = 5500 - 100PA
or PA = 55 - (1/100)QA

QB = 18000 - 400PB
or PB = 45 - (1/400)QB

(a) If the firm charges different prices in each market the practice is called price discrimination. More precisely it is third-degree price discrimination since the firm can separate the two markets.

(b) The fixed costs are given to be $20000. The variable cost is given to be $15 per unit. Therefore, total cost to produce quantity Q is given by

TC = FC + VC = 20000 + 15Q

Marginal cost is the change in total cost with a unit change in quantity. The change in total cost for each unit change in Q is 15. Therefore,

MC = 15.

The marginal revenue curve in market A is given as

MRA ...

Solution Summary

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