In: Economics
A monopolist produces for two, geographically distinct markets.
The demand in market A is qA = 72−3p
and the demand in market B is qB = 40 − 2p. The firm’s total cost
function is C(qA + qB) = 5 + 2(qA + qB).
The cost of transporting a good between the two markets is t.
a. Suppose that transportation cost is t = 0. Find the price in
each market that maximizes the monopolist’s
profits. What are the corresponding quantities in each
market?
b. Suppose instead t = ∞. Find the price in each market that
maximizes the monopolist’s profits. What
are the corresponding quantities in each market?
c. Suppose instead t = 1. Find the price in each market that
maximizes the monopolist’s profits. What
are the corresponding quantities in each market?