A monopolist has a constant marginal cost of £2 per unit and no fixed costs. He faces two separate markets in the United States and in the UK. The goods sold in one market are never resold in the other. He sets one price P1 for the US market and another price P2 for the UK market (both measured in £). The demand in the United States is given by Q1=7,000-700P1 and the demand in the UK is given by Q2=1,200-200P1.I. Calculate the profit maximising output produced and price charged in each country by the price-discriminating monopolist and comment in which country the price charged is higher and by how much. II. Explain if your answer above is as expected by calculating the elasticities of demand in each country.

The market situation where a single seller faces the entire market demand all by himself is known as…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Problem 1QTC

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A monopolist has a constant marginal cost of £2 per unit and no fixed costs. He faces two separate markets in the United States and in the UK. The goods sold in one market are never resold in the other. He sets one price P₁ for the US market and another price P₂ for the UK market (both measured in £). The demand in the United States is given by Q₁=7,000-700P₁ and the demand in the UK is given by Q₂=1,200-200P₁.

I. Calculate the profit maximising output produced and price charged in each country by the price-discriminating monopolist and comment in which country the price charged is higher and by how much.

II. Explain if your answer above is as expected by calculating the elasticities of demand in each country.

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