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 = ________________________________
(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 = ___________________________________
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