4. Suppose a monopolist can produce any level of output it wishes at a constant marginal cost of c=5. Assume the monopoly sells its goods in two different markets separated by some distance. The demands in the two markets are given by 9₁ = 55-P₁ and 92= 70-2p2 (a) If the monopolist can maintain the separation between the two markets, what level of output should be produced in each market, and what price will prevail in each market? What are total profits in this case? (b) How would your answer change if it costs consumers only $5 to transport goods between the two markets? What would be the monopolist's new profit level in this situation? [Hint: If the price differential in (a) is less that $5, then it makes no difference. If greater than $5, then this becomes a constrained maximization: Formulate profit as a function of p₁ and p2, and max w.r.t. prices subject to price differential equal 5.] (c) How would your answer change if transportation costs were zero? [Hint: In this case, monopolist will be forced to choose a uniform price, p. Again, formulate profit as a function of p and maximize w.r.t. p]

4. Suppose a monopolist can produce any level of output it wishes at a constant marginal cost of c=5. Assume the monopoly sells its goods in two different markets separated by some distance. The demands in the two markets are given by 9₁ = 55-P₁ and 92= 70-2p2 (a) If the monopolist can maintain the separation between the two markets, what level of output should be produced in each market, and what price will prevail in each market? What are total profits in this case? (b) How would your answer change if it costs consumers only $5 to transport goods between the two markets? What would be the monopolist's new profit level in this situation? [Hint: If the price differential in (a) is less that $5, then it makes no difference. If greater than $5, then this becomes a constrained maximization: Formulate profit as a function of p₁ and p2, and max w.r.t. prices subject to price differential equal 5.] (c) How would your answer change if transportation costs were zero? [Hint: In this case, monopolist will be forced to choose a uniform price, p. Again, formulate profit as a function of p and maximize w.r.t. p]

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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