PLEASE HELP ME TO ANSWER STEP BY STEP. DEATAILY AND CLEARLY. Suppose a monopolis

Question

PLEASE HELP ME TO ANSWER STEP BY STEP. DEATAILY AND CLEARLY.

Suppose a monopolist has two segmented markets, domestic (1) and foreign (2). The demand functions for both markets and the total cost function are as follows: P1 = 100 - Q1 P2 = 80 - 2Q2 2 2 TC = Q1 + 2Q1Q2 + Q2 Find the output the firm would produce and sell in each market in order to maximize profit. What price will the firm charge in each market? Explain, with quantitative evidence, the relevance of price elasticity of demand in the determination of the relative prices charged in each market. (Hint: Estimate the price elasticity of demand in each market. The market with a more elastic demand should be charged a lower price. Do the results obtained conform with this principle?) Explain why a firm needs thorough knowledge of ATC, AVC and MC. Indicate the key market decision(s) associated with each variable. Explain the basic features of the various market structures discussed in class. What is product differentiation? How is it that in a perfectly competitive market long run economic profit is zero?

Explanation / Answer

Profit total =

(TC - [P_1(Q_1) + P_1(Q_1)])

(= Q_1+ 2Q_1Q_2 + Q_2 - 100Q_1 - Q_1^2 - 80Q_2 - 2Q_2^2)

Let's say total out put is Q and domestic output is q. Hence foreign market output is Q-q

Profit = (q + 2q(Q-q) + Q - q - 100q - q^2 - 80(Q-q) - 2(Q-q)^2)

(= 6Qq - 4q^2 - 20q - 79Q - 2Q^2)

Profit maximised => partial differential wrt Q = 0 and partial differential wrt q = 0

(6q + 4Q = 79)

&

(6Q - 8q = 20)

Solving simultaneously:

Q = 11.058

q = 5.794 (domestic)

Foreign = 5.264

Charge: by price functions

Domestic: 94.206

Foreign: 69.472

2) The AVC and the Marginal costs have direct relation to the profit earned with respect to the Avg Total costs. Hence a firm needs thorough knowledge of these factors to poristion itself in the market for optimised profits.

3) In economics and marketing, product differentiation (or simply differentiation) is the process of distinguishing a product or service from others, to make it more attractive to a particular target market. In a perfectly competitve market, long run "profits" are zero: since fixed and variable costs increase, the amount of those wanting to enter the industry decreases, but that does not affect that the perfect competition in that competitors are in a continuous battle against each other to obtain the market.

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