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Thread: Monopoly Questions

  1. #1
    Junior Member
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    Monopoly Questions

    A monopoly sells in 2 separate markets. The demand functions are $\displaystyle Q_1=100-P_1$and $\displaystyle 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 $\displaystyle 100-Q_1=10 $ and $\displaystyle 70-Q_2/2=10 $?

    Thanks in advance
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  2. #2
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    Be careful how you combine the demand functions in the first question. $\displaystyle Q_2=140-2P_2 $ only when $\displaystyle P<70 $, otherwise $\displaystyle Q_2=0 $. Therefore, your combined demand function is only valid for $\displaystyle P<70 $.

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