Question

1) A monopolist firm sells its output in two regions: Califomia and Florida. The demand curves for each market are QF15-PF OF and Qc are measured in 1000s of units, so you may get decimal values for Q. If P-$10 and Q-1, the profit of S10 that you calculate is actually $10,000). Qc 12.5 - 2 Pc The monopoly's cost function is C 5+3Q5+3(QF+Qc) First, we'll assume that the monopoly can only charge one price in both markets. a) Calculate the total market demand curve for this product. Find the firm's profit maximizing level of output, the price it will charge, and the profit the firm earns This is the standard monopoly problem: MR-MC to find Q*, then plug into the demand curve to get P*. b) Use the two sub-market demand curves to calculate how much of this output the firm sells in CA versus FL c) Briefly discuss whether you think this monopoly will be able to charge different prices to the two groups of consumers can price discrimination work here? d) Assume that the firm can charge each group a different price. Calculate the new profit maximizing price and quantity for each sub-market, and the total profit the firm will earn by price discriminating. Calculate marginal revenue functions for each sub-market (i.e. MRc and MRF), and use the profit maximizing condition MRc MRF MC to find the optimal quanties. Plug these into each demand curve to find the optimal prices e) Calculate the marginal revenue of the firm in each submarket when the monopoly can only charge one price. Use these numbers to explain the intuition of why the monopoly earns higher profits when it can charge different prices. Plug QF and Qc into MRc and MRF.

Answer 1

D) profit in Florida = (9-3)*6 = 36

In California = ( 14-3)*5.5 = 60.5

So total profit = 36+60.5 = 96.5

It's mandatory to answer only first four parts as HOMEWORKLIB RULES policy