OC makes and sells an executive game for two distinct markets in which it currently has a monopoly. The fixed costs of production per month are $20,000, and variable costs per unit produced, and sold, are $40. The monthly sales can be thought of as X, where X = X1 + X2, with X1 and X2 denoting
OC makes and sells an executive game for two distinct markets in which it currently has a
produced, and sold, are $40.
The monthly sales can be thought of as X, where X = X1 + X2, with X1 and X2 denoting
monthly sales in their respective markets. Detailed
functions in the markets to be as follows, with prices shown as P1 and P2:
Market 1: P1 = 55 - 0.05X1
Market 2: P2 = 200 - 0.2X2
The
$50 per game in either market.
Required:
a) What is the optimum price to charge in Market 1?
b) What is the optimum quantity to produce in Market 2?
c) The following statements have been made about price discrimination:
1) Price discrimination should be used if a business wishes to discourage new
entrants into a market.
2) Price discrimination can be difficult to implement in practice, because it relies for
success upon the continued existence of certain market conditions.
Which of the above statements is/are true?: -
A. 1) only
B. 2) only
C. Neither 1) nor 2)
D. Both 1) and 2)
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