P. Ca.-2) product in the oer ed so that the buyers of the product in one market
ID: 1126016 • Letter: P
Question
P. Ca.-2) product in the oer ed so that the buyers of the product in one market can not sell the product in the other market. The monopoly firm had done Market A, and Market B. marketine research and found the demand A monopoly firm sells its product in two different markets: for its product for each market as it is shown below Market A Market EB 6 2 6 5 0 6 6 8 SPs=Price in Market A SqA quantity Market A SP-Price in Market B S qa quantity Market B Moreover, the firm's cost accounting department reports that the average total cost and the marginal cost of output is $2. The firm's owner wants to practice price discrimination (differentiation). He asks you, as a business student, to find the following: (a) What price to charge the buyers of Market A, and what of Market B? (b) How many units of output to sell in Market A, and how many inn Market B? (c) How much is the Total Profit from both markets?Explanation / Answer
Following is the required table -
MARKET A
MARKET B
PA
QA
TRA
MRA
PB
QB
TRB
MRB
0
6
0
-
0
8
0
-
1
5
5
5
1
7
7
7
2
4
8
3
2
6
12
5
3
3
9
1
3
5
15
3
4
2
8
-1
4
4
16
1
5
1
5
-3
5
3
15
-1
6
0
0
-5
6
2
12
-3
7
1
7
-5
8
0
0
-7
The marginal cost is $2.
With respect to Market A, in order to maximize profit, monopolist will produce output upto the level to which MR exceeds MC.
It can be seen from above table, MR exceeds MC upto production of 2 units of output.
So, in Market A, monopolist will sell 2 units of output.
Price corresponding to 2 units of output is $4 per unit.
With respect to Market B, in order to maximize profit, monopolist will produce output upto the level to which MR exceeds MC.
It can be seen from the above table, MR exceeds MC upto production of 3 units of output.
So, in Market B, monopolist will sell 3 units of output.
Price corresponding to 3 units of output is $5 per unit.
(a)
The buyers in Market A will be charged $4 per unit.
The buyers in Market B will be charged $5 per unit.
(b)
2 units of output would be sold in Market A.
3 units of output would be sold in Market B.
(c)
Calculate the Total Profit -
Total Profit = ($4 * 2) + ($5 * 3) - ($2 * 5) = $8 + $15 - $10 = $13
The Total profits from both the markets is $13.
MARKET A
MARKET B
PA
QA
TRA
MRA
PB
QB
TRB
MRB
0
6
0
-
0
8
0
-
1
5
5
5
1
7
7
7
2
4
8
3
2
6
12
5
3
3
9
1
3
5
15
3
4
2
8
-1
4
4
16
1
5
1
5
-3
5
3
15
-1
6
0
0
-5
6
2
12
-3
7
1
7
-5
8
0
0
-7
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