9. International price discrimination Giocattolo is an Italian firm, and it is the only seller of toy cars in Italy and Spain. Suppose that when the price of toy cars increases, Spanish children more readily replace them with toy motorbikes than Italian children. Thus, the demand for toy cars in Spain is more elastic than in Italy. The following graphs show the demand curves for toy cars in Italy (D₁) and Spain (Ds) and marginal revenue curves in Italy (MR) and Spain (MRs). Giocattolo's marginal cost of production (MC), depicted as the grey horizontal line in both graphs, is $12, and the resale of toy cars from Spain to Italy is prohibited. Assume there are no fixed costs in production, so marginal cost equals average total cost (ATC). PRICE (Dollars per toy car) 2 ****222... Country Italy Spain Total 2 Italy QUANTITY (Millions of toy cars) D₁ MR, 6 8 10 12 14 16 18 20 Price (Dollars per toy car) 20 20 N/A MC=ATC O True O False PRICE (Dollars per toy car) Single Price Quantity Sold (Millions of toy cars) N/A 20 Suppose that as a nondiscriminating seller, Giocattolo charges the same price of $20 per toy car in each of the two markets. 8 In the following table, complete the third column by determining the quantity sold in each country at a price of $20 per toy car. Next, complete the fourth column by calculating the total profit and the profit from each country under a single price. 0 Profit (Millions of dollars) Spain D₂ MR 4 6 8 10 12 14 16 18 20 QUANTITY (Millions of tov cars) Price (Dollars per toy car) N/A MC ATC Giocattolo charges a higher price in the market with a relatively elastic demand curve. ? True or False: Under price discrimination, Giocattolo is not dumping toy cars into the Spanish market. Price Discrimination Quantity Sold (Millions of toy cars) N/A Suppose that as a profit-maximizing firm, Giocattolo decides to price discriminate by charging a different price in each market, while its marginal cost of production remains $12 per toy. Complete the last three columns in the previous table by determining the profit-maximizing price, the quantity sold at that price, the profit in each country, and total profit if Giocattolo price discriminates. Profit (Millions of dollars)