A monopolist produces a unique product in three different plants, each with its ownmarginal cost structure. The overall market demand for the product is governed bythe demand function = 128 - 8* P,where is the total quantitydemanded, and Pis the market price. To meet this demand, the monopolist mustdecide on the allocation of production quantities Q1, Q2 and Q3 across Plant 1,Plant 2, and Plant 3 respectively. The marginal costs (MC) for producing the good ineach plant are as follows: MC₁ = 1, MC₂ = 1 + 2 andMC3Q3. How many units should the monopolist optimally produce inPlant 1 to contribute to the total market demand62 unitsO unit63 units

The optimal production quantity for Plant 1 is 63 units. Explanation:The monopolist must decide on…

Answered: A monopolist produces a unique product…

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter12: Monopoly

Section: Chapter Questions

Problem 3DQ

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A monopolist has discovered that the inverse demand function of a person with income Y for the monopolist’s product is P = 0.002Y-Q where P is the price, Y the income, and Q is the output. The monopolist can observe the incomes of its consumers and hence vary its price accordingly. The monopolist has a total cost function C(Q) = 100Q. 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=1,200-200P2. 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. Explain if your answer above is as expected by…

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