Consider a firm that sells a product in two isolated geographical areas. If it wants to,...

Consider a firm that sells a product in two isolated geographical areas. If it wants to, it can then charge different prices in the two different areas because what is sold in one area cannot easily be resold in the other. Suppose that the firm has also some monopoly power to influence the different prices it faces in the two separate markets by adjusting the quantity it sells in each. This is called a 'discriminating monopolist". The following are the demand functions it faces:

P₁ = 200 – 2 Q₁, P₂ = 180 – 4 Q₂

for market areas 1 and 2, respectively. Suppose, too, that the total cost is proportional to total production:

C(Q) = 20 (Q₁ + Q₂).

Set up the firm's profit function and determine how much should be sold in the two markets to maximize profits. What are the corresponding prices?
Check for second-order conditions.
How much profit is lost if it becomes illegal to discriminate? (i.e. P₁ = P₂ = P, and Q = Q₁ + Q₂).

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

A firm wants to increase the quantity of the product it sells by 5%. If the...

A firm wants to increase the quantity of the product it sells by 5%. If the price elasticity of demand is -2.5, the company must A. increase price by 2.0%. B. decrease price by 2.0%. C. increase price by 0.5%. D. decrease price by 0.5%. E. None of the abov3

Consider Firm A. Firm A charges $ 500 for its product. Firm A wants to know...

Consider Firm A. Firm A charges $ 500 for its product. Firm A wants to know if its’ competitors, on average, charge a price lower than $ 500. So, they test the null hypothesis that the population mean price of the product = $ 500 against the alternative hypothesis that it is less than $ 500. They sample 256 other firms, and find the following sample statistics: Sample Mean = $ 458 Sample Standard Deviation = $ 336 Test the...

1. Consider two Cournot duopolists. Each firm sells a homogenous product and has a MC =...

1. Consider two Cournot duopolists. Each firm sells a homogenous product and has a MC = c per unit, and no fixed costs. Market demand is P = a−bQ, where market quantity sold Q = q1 +q2, where q1 is firm 1’s output and q2 is firm 2’s output. Each firm simultaneously chooses its quantity to sell, then lets price clear the market. a. What is firm 1’s best response function (or reaction function)? b. Solve for the profit maximising...

Consider a firm that produces output that sells in the product market for a price P...

Consider a firm that produces output that sells in the product market for a price P = 1. The firm uses the production technology Y = F(L) = 10 ∗ ln(L), where L is the number of laborers hired in production. The firm takes the hourly wage W as given. Capital is not used in production. 1.1 Suppose the wage rises from W = 1 to W = 2. What is the firm’s elasticity of demand over this range? 1.2...

A monopoly firm sells its product to two countries: A and B. Demand in the two...

A monopoly firm sells its product to two countries: A and B. Demand in the two countries are QA = 100 – 2p and QB = 80 – p. Firm’s cost function is C = 100 + 10Q. Find the firm’s total profit and the prices it charges in the two countries.

a) Consider a firm that sells its output in a perfectly competitive product market, and hires...

a) Consider a firm that sells its output in a perfectly competitive product market, and hires labour in a perfectly competitive labour market. The value of the marginal product of labour (in dollars) is given by: VMPL = 30-2L Assuming that the firm is a profit maximizer and can hire labour at $W per unit, derive its labour demand function. b) Given that there are 10 identical firms (like the firm described is part (a)) in the industry, show...

Consider a firm that sells its product in both the U.S. and the U.K. U.S. demand...

Consider a firm that sells its product in both the U.S. and the U.K. U.S. demand is for 10,000 units, and the U.S. production capacity is 8,000 units. Demand in the U.K. is for 6,000 units, and the U.K. production capacity is 12,000 units. Production cost in the U.S. is $10, and production cost in the U.K. is ₤4. The current exchange rate is $2.8 = ₤1. The shipping cost is $1 per unit for any units shipped between the...

The management of a firm wants to introduce a new product. The product will sell for...

The management of a firm wants to introduce a new product. The product will sell for $4 a unit and can be produced by either of two scales of operation. In the first, total costs are TC = $4,000 + $2.6Q. In the second scale of operation, total costs are TC = $6,520 + $2.0Q. What is the break-even level of output for each scale of operation? Round your answers to the nearest whole number. The first scale of operation:...

Inc., manufactures and sells two products: Product G8 and Product O0. Historically, the firm has used...

Inc., manufactures and sells two products: Product G8 and Product O0. Historically, the firm has used a traditional costing system, with direct labor hours as an activity base, to allocated manufaturing overhead to products. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours Product G8 770 5.7 4,389 Product O0 370 2.7 999 Total direct labor-hours 5,388 The...

Fmaedi156, Inc., manufactures and sells two products: Product G8 and Product O0. Historically, the firm has...

Fmaedi156, Inc., manufactures and sells two products: Product G8 and Product O0. Historically, the firm has used a traditional costing system, with direct labor hours as an activity base, to allocated manufaturing overhead to products. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours Product G8 820 6.2 5,084 Product O0 420 3.2 1,344 Total direct labor-hours 6,428...

Subjects