In: Economics
A monopolist faces two totally separated markets with inverse
demand p=100 – qA and
p=160−2qB respectively. The monopolist has no fixed costs and a
marginal cost given by mc= 2 /3q
Find the profit maximizing total output and how much of it that
is sold on market A and market
B respectively if the monopoly uses third degree price
discrimination.
a) What prices will our monopolist charge in the two separate
markets?
b) Calculate the price elasticity of demand in each market and
explain the intuition behind the
relationship between the prices and elasticities in these two
separate markets.