Suppose a monopolist produces in a market with two distinct segments: market 1, which is denoted as M1 on the graph, and market 2,denoted as M2. The firm's marginal and average costs are $20.$120$110$100$90$70PriceM1 MRM$60$50Price M2$40MR19MC = $20$30$20DemandM1Demand M2120110$10701000.20QuantityInstructions: Enter your answers as a whole number.a. What is the firm's profit in market 1?2$875b. What is the firm's profit in market 2?%24375c. In which market is demand more elastic?Market 2Price ($)9080

There are two markets, i.e., market 1 and market 2, in which a monopolist operates. The monopolist faces a constant marginal cost, i.e., $20. In each market, monopolist produces at the intersection point of marginal revenue of that market and marginal cost in order to maximize profit. i.e., In market 1, the monopolist will produce at MR1 = MC and In market 2, monopolists will produce at MR2 = MC (a) In market 1, the monopolist will produce at MR1 = MC So, the profit-maximizing quantity and prices will be 40 and $60 respectively i.e., Q1 = 40 and P1 = 60 -- MC is constant at $20. It means the ATC will also be constant and equal to $20 -------------- Profit of firm in market 1: Profit in market 1 = Q1 * P1 - ATC * Q1 => Profit in market 1 = Q1 * (P1 - ATC) =>Profit in market 1 = 40 * (60 - 20) => Profit in market 1 = 40 * 40 => Profit in market 1 = 1600 Answer: Firm's profit in market 1 is 1600 ---------------------- (b) In market 2, the monopolist will produce at MR2 = MC So, the profit-maximizing quantity and prices will be 40 and $60 respectively i.e., Q2 = 30 and P2 = 35 -- MC is constant at $20. It means the ATC will also be constant and equal to $20 -------------- Profit of firm in market 2: Profit in market 2= Q2 * P2 - ATC * Q2 => Profit in market 2 = Q2 * (P2 - ATC) =>Profit in market 2 = 30 * (35 - 20) => Profit in market 2 = 30 * 15 => Profit in market 2 = 450 Answer: Firm's profit in market 2 is 450 ---------------------- (c) Price charge by a monopolist in market 1 is $60 and in market 2 is $35 Since the lowest price is charged in market 2, market 2 is more elastic. Answer: Market 2

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Suppose a monopolist produces in a market with two distinct segments: market 1, which is denoted as M1 on the graph, and market 2, denoted as M2. The firm's marginal and average costs are $20. $120 $110 $100 $90 $80 A $70 PriceM1 MRM1 $60 $50 $40 PriceM2 $30 MC = $20 $20 $10 Demandw2 DemandM1 110 Quantity Instructions: Enter your answers as a whole number. a. What is the firm's profit in market 1? Price ($)

Suppose a monopolist produces in a market with two distinct segments: market 1, which is denoted as M1 on the graph, and market 2, denoted as M2. The firm's marginal and average costs are $20. $120 $110 $100 $90 $80 A $70 PriceM1 MRM1 $60 $50 $40 PriceM2 $30 MC = $20 $20 $10 Demandw2 DemandM1 110 Quantity Instructions: Enter your answers as a whole number. a. What is the firm's profit in market 1? Price ($)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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