Consider an imperfectly competitive service provider, Muscat Automotive Repair Services (MARS), whose total cost of production is C = 30Q +0. 165Q2. Also, MARS faces two different market segments, A and B, whose demands can be linearly expressed as QA = 240 − PA and QB = 120 − 0.5PB . (Hint: the marginal cost is the slope of the total cost function). 4. If MARS decides to segment the market in accordance with the demands of groups A and B, find the profit-maximizing prices and quantities (PA, QA) and (PB, QB). 5. What is the value of the consumer surplus for each group A and B, under this segmentation strategy? 6. Draw the situation described in (4) and (5) above, clearly showing each group’s profitmaximizing price and quantity, and the areas that correspond to their consumer surpluses.
Consider an imperfectly competitive service provider, Muscat Automotive Repair Services (MARS), whose total cost of production is C = 30Q +0. 165Q2. Also, MARS faces two different market segments, A and B, whose demands can be linearly expressed as QA = 240 − PA and QB = 120 − 0.5PB . (Hint: the marginal cost is the slope of the total cost function).
4. If MARS decides to segment the market in accordance with the demands of groups A and B, find the profit-maximizing prices and quantities (PA, QA) and (PB, QB).
5. What is the value of the
6. Draw the situation described in (4) and (5) above, clearly showing each group’s profitmaximizing price and quantity, and the areas that correspond to their consumer surpluses.
7. Verify the inverse elasticity rule under each of the scenarios described (1) and (4) above.
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