Question

.A Tirelling its product in two markets, A and B, the demand and marginal revenue functions in which are shown as DA. Ds. MRA. and MRs in the following figure along with the marginal cost function. 100 MC 5 80 2 60 9 40 F MR 、MR 200 400 600 800 1,000 1,200 Q uantity Complete the diagram (MTt). To maximize profit the firm will sell a total output of will be sold in market A and a. units of which uni ts units in market B. b. The firm will charge a price of $ c. In equilibrium the demand elasticity is in market A and $ in B. in market A and in B. Does the relation between elasticities conform to the theoretical relation between prices? Why or why not?

Answer 1

In market A We know that, maximum profit condition is, MRA MC The figure shows that the above condition is achieved at output 550 at price $50. In market EB We know that, maximum profit condition is, MRB MC The figure shows that the above condition is achieved at output 650 at price $70. a. So, total output is -650+550-1200 b Price in market A is $50 and market B is $70 c. elasticity in A 550/50 11 Elasticity in B 650/70 9.3 At equilibrium point market A is more elastic than market EB The theoreticalrelation says that the market with higher price is more elastic than the market with lower price. The above conclusion is also same. Note-the numbers may be incorrect as there is no grid in graph to estimate perfectly.