Problem 2 Suppose a monopoly can produce any level of output it wishes at a constant marginal (and average) cost of 5€ per unit. Assume the monopoly sells its goods in two different markets separated by some distance. The demand curve in the first market is given by Q₁ = 55 - P₁, and the demand curve in the second market is given by Q2 = 70 - 2P₂. a) If the monopolist can maintain the separation between the two markets, what level of output should be produced in each market, and what price will prevail in each market? What are total profits in this situation? b) How would your answer change if it costs demanders only 5€ to transport goods between the
Problem 2 Suppose a monopoly can produce any level of output it wishes at a constant marginal (and average) cost of 5€ per unit. Assume the monopoly sells its goods in two different markets separated by some distance. The demand curve in the first market is given by Q₁ = 55 - P₁, and the demand curve in the second market is given by Q2 = 70 - 2P₂. a) If the monopolist can maintain the separation between the two markets, what level of output should be produced in each market, and what price will prevail in each market? What are total profits in this situation? b) How would your answer change if it costs demanders only 5€ to transport goods between the
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Problem 2
Suppose a monopoly can produce any level of output it wishes at a constant marginal (and average) cost
of 5€ per unit. Assume the monopoly sells its goods in two different markets separated by some
distance. The demand curve in the first market is given by Q₁ = 55 — P₁, and the demand curve in the
second market is given by Q₂ = 70 - 2P₂.
a)
If the monopolist can maintain the separation between the two markets, what level of output
should be produced in each market, and what price will prevail in each market? What are total
profits in this situation?
b) How would your answer change if it costs demanders only 5€ to transport goods between the
two markets? What would be the monopolist's new profit level in this situation?
c) How would your answer change if transportation costs were zero and then the firm was forced
to follow a single-price policy?
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