Question

1. A monopolist producer of a sailboat motor sells output in two geographically separated markets (East and West Coasts).  Inverse demand and marginal revenue for the two markets are: 

P1 = 2000 - Q1 and MR1 = 2000 - 2Q1 and P2 = 3000 - 2Q2 and MR2 = 3000 - 4Q2. 

The monopolist’s total cost is C = 500,000 + 1000(Q1 + Q2). What are price, output, profits, marginal revenues, and deadweight loss for the following two cases: 

(a) the monopolist can price discriminate.

 P1* = ___________________________________ Q1* = __________________________________ 

P2* = ___________________________________ Q2* = __________________________________ 

profits = _____________________________ DWL = ________________________________ 

Workspace 

(b) the law prohibits charging different prices to different customers.  Be careful here when finding combined demand, combined inverse demand and combined marginal revenue! 

Combined demand (total quantity as a function of price) when P < $2000: _____________________ 

Combined demand when P is between $2000 and $3000: __________________________________ 

P* = ___________________________________ Q* = ___________________________________ 

profits = ________________________________ DWL = ___________________________________

Answer 1