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Nicolas Cage, Lord of War, sells guns to two countries that are at war with each...

Nicolas Cage, Lord of War, sells guns to two countries that are at war with each other. The guns can be provided at a constant marginal cost of $10. Assume there is no fixed cost. The demand for guns from the two countries can be represented as: QA = 100 - 2p QB = 80 - 4p

a) Why is the weapons producer able to price discriminate? Be specific. (1 point)

b) What price will it charge to each country? (4 points)

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Answer #1

1 Because the elasticity of demand in two markets is different and so are marginal revenue

2 see image

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