Question

In: Economics

4. Suppose a monopolist faces two markets with the following demand curves: Market 1: ?1(?1) =...

4. Suppose a monopolist faces two markets with the following demand curves: Market 1: ?1(?1) = 400 − 2?1
Market 2: ?2(?2) = 1000 − 4?2

Let the marginal cost be $20 per unit in both markets.

If the monopolist can price discriminate, what should be ?1 and ?2 to maximize the monopolist’s profit?

Expert Solution

1) D1=400-2p1

2p1=400-D1

p1=200-0.5D1

MR=200-D1

MR=MC

200-D1=20

D=200-20=180

P=200-0.5(180) = 110

2) D2=1000-4p2

4p2=1000-D2

p2=250-0.25D2

MR=250-0.5D2

MR=MC

250-0.5D2=20

250-20=0.5D2

D=230/0.5 = 460

P=250-0.25(460) = 135

Rahul Sunny answered 2 years ago

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