Suppose a textbook monopoly can produce any level of output it wishes at a constant marginal (and average) cost of $5 per book. Assume that the monopoly sells its books in two different markets that are separated by some distance. The demand curve in the first market is given by Q₁ = 55 - P₁ and the curve in the second market is given by Q2 = 70-2P2- a) If the monopolist charge the same price, how many units should it sell? What price should it charge to maximize its profits? What are profits in this situation? (Answer: Q = 55 units) b) 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? (Answer: Q₁ = 25 units; Q₂ = 30 units)

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Chapter1: Making Economics Decisions
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4. Suppose a textbook monopoly can produce any level of output it wishes at a constant
marginal (and average) cost of $5 per book. Assume that the monopoly sells its books in
two different markets that are separated by some distance. The demand curve in the first
market is given by Q₁ = 55 - P₁ and the curve in the second market is given by
Q2 = 70 - 2P₂.
a) If the monopolist charge the same price, how many units should it sell? What price
should it charge to maximize its profits? What are profits in this situation? (Answer:
Q = 55 units)
b) 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? (Answer: Q₁ = 25 units; Q₂ = 30 units)
Transcribed Image Text:4. Suppose a textbook monopoly can produce any level of output it wishes at a constant marginal (and average) cost of $5 per book. Assume that the monopoly sells its books in two different markets that are separated by some distance. The demand curve in the first market is given by Q₁ = 55 - P₁ and the curve in the second market is given by Q2 = 70 - 2P₂. a) If the monopolist charge the same price, how many units should it sell? What price should it charge to maximize its profits? What are profits in this situation? (Answer: Q = 55 units) b) 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? (Answer: Q₁ = 25 units; Q₂ = 30 units)
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