Monopoly Questions

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• April 18th 2010, 10:19 AM
firebio
Monopoly Questions
A monopoly sells in 2 separate markets. The demand functions are $Q_1=100-P_1$and $Q_2=140-2P_2$with a constant variable cost of \$10.

1. Suppose the monopoly were forced to charge 1 single price. What is the optimal price?
2. Suppose the monopoly can perfectly discriminate in both markets, calculate the profit for both market.

1. Should i combine both demand functions into one? So Q=240-3P?
2. For each market, should i set price = mc? so $100-Q_1=10$ and $70-Q_2/2=10$?

Thanks in advance
• April 24th 2010, 06:23 AM
eiad77
Be careful how you combine the demand functions in the first question. $Q_2=140-2P_2$ only when $P<70$, otherwise $Q_2=0$. Therefore, your combined demand function is only valid for $P<70$.

Remember you don't want to set price equal to marginal cost, you want to set marginal revenue equal to marginal cost.