GuitarAmp, Ltd. is a company that sells electric guitar amplifiers in the US and the EU. The inverse demand functions for the two markets are given as Pus 10 – Yus and Peu = 6 – %3D SYEU, respectively. The amps for both markets are manufactured in Indonesia with a fixed marginal cost of $2 and sold to clients only through its online retail stores (assume the online stores are affiliates of the company and that the profits are directly recorded by GuitarAmp, Ltd.). Due to its unique patented technology, the company is a monopoly in both markets. а. Assuming GuitarAmp, Ltd. has an exclusive territorial online retail agreement in each market with its vendors (an online vendor in the US cannot sell to an address in Europe, and vice versa), what would be the profit-maximizing prices and quantities in the US and the EU? What are the profits from each market? b. Assume, instead of the exclusive territorial agreements, GuitarAmp, Ltd. has one global retail agreement with its online vendor that sells to both markets. Drawing a diagram (with the proper labels) show the combined market demand and marginal is the price? What is the total profit? How many amps does the company revenue. W sell in each market? с. If GuitarAmp, Ltd. could perfectly price discriminate in the combined market from part (b), what would be the price and quantity? What is the total profit?
GuitarAmp, Ltd. is a company that sells electric guitar amplifiers in the US and the EU. The inverse demand functions for the two markets are given as Pus 10 – Yus and Peu = 6 – %3D SYEU, respectively. The amps for both markets are manufactured in Indonesia with a fixed marginal cost of $2 and sold to clients only through its online retail stores (assume the online stores are affiliates of the company and that the profits are directly recorded by GuitarAmp, Ltd.). Due to its unique patented technology, the company is a monopoly in both markets. а. Assuming GuitarAmp, Ltd. has an exclusive territorial online retail agreement in each market with its vendors (an online vendor in the US cannot sell to an address in Europe, and vice versa), what would be the profit-maximizing prices and quantities in the US and the EU? What are the profits from each market? b. Assume, instead of the exclusive territorial agreements, GuitarAmp, Ltd. has one global retail agreement with its online vendor that sells to both markets. Drawing a diagram (with the proper labels) show the combined market demand and marginal is the price? What is the total profit? How many amps does the company revenue. W sell in each market? с. If GuitarAmp, Ltd. could perfectly price discriminate in the combined market from part (b), what would be the price and quantity? What is the total profit?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:GuitarAmp, Ltd. is a company that sells electric guitar amplifiers in the US and the EU. The
inverse demand functions for the two markets are given as pus
Peu = 6 –
YEU, respectively. The amps for both markets are manufactured in Indonesia with a fixed
marginal cost of $2 and sold to clients only through its online retail stores (assume the online
stores are affiliates of the company and that the profits are directly recorded by GuitarAmp,
Ltd.). Due to its unique patented technology, the company is a monopoly in both markets.
= 10 – Yus
and
а.
Assuming GuitarAmp, Ltd. has an exclusive territorial online retail agreement
in each market with its vendors (an online vendor in the US cannot sell to an address in
Europe, and vice versa), what would be the profit-maximizing prices and quantities in
the US and the EU? What are the profits from each market?
b.
Assume, instead of the exclusive territorial agreements, GuitarAmp, Ltd. has
one global retail agreement with its online vendor that sells to both markets. Drawing a
diagram (with the proper labels) show the combined market demand and marginal
revenue. What is the price? What is the total profit? How many amps does the company
sell in each market?
С.
If GuitarAmp, Ltd. could perfectly price discriminate in the combined market
from part (b), what would be the price and quantity? What is the total profit?
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