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Profit-maximizing price: Geographically divided markets

A monopolist sells in two geographically divided markets, the East and the West. 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

a. Find the profit-maximizing price and quantity in each market.
b. In which market is demand more elastic?

Solution Preview

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

Marginal Cost=MC=$50

Market : East
MRe=450-QE
Put MRe=MC
450-QE=50
QE=400

QE=900-2Pe
Put QE=400
400=900-2Pe
2Pe=500
Pe=250

Profit Maximizing price in East=$250
Profit Maximizing ...

Solution Summary

Solution depicts the steps to find out the optimal price and output combinations in two different markets.

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