Consider a firm that has one factory, but can sell its product in two observably different markets, engaging in third-degree price discrimination. You may assume that the good produced is continuously divisible (like ethanol). The firm has a monopoly in market 1 and faces market demand curve Q1(P) = 100 – 2P and the firm also sells its product in market 2 which is competitive and has market price P2 = $30. The firm has cost function C(Q) = 0.25Q2 with marginal cost equal to MC(Q) = 0.5Q, where Q = Q1 + Q2 is the total quantity it produces: Q1 is the quantity to be sold in market 1 and Q2 is the quantity to be sold in market 2. a) Write out the firm’s profit maximization problem. b) Give the marginal conditions (equations) that a solution to the profit maximization problem satisfies. c) Solve for the firm’s optimal quantities to sell in each market.
Consider a firm that has one factory, but can sell its product in two observably different markets, engaging in third-degree
a) Write out the firm’s profit maximization problem.
b) Give the marginal conditions (equations) that a solution to the profit maximization problem satisfies.
c) Solve for the firm’s optimal quantities to sell in each market.
d) Give the price that the firm optimally charges in each market
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