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Assume a monopolist can produce at constant average and marginal costs of AC=MC=5, and sells its...

Assume a monopolist can produce at constant average and marginal costs of AC=MC=5, and sells its goods in two different markets separated by some distance. The demand in the first market is given by Q1= 55 - P1 and the demand in the second market is given by Q2 = 70 - 2P

(a) If the monopolist can maintain the separation between the two markets, what level of output should be produced in each market, and what’s the price charged in each market? What are total profits in this situation?

(b) How would your answer change if transportation costs were zero and then the firm was forced to follow a single-price policy?

(c) Are the monopolist’s profits larger in (a) or (b)? Explain this result intuitively.

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