A monopolistic firm operates in the U.S. No trade is possible between the NY mar
ID: 1186931 • Letter: A
Question
A monopolistic firm operates in the U.S. No trade is possible between the NY market and the LA market. The firm has calculated the demand functions for each market as follows:
NY Market p = 150 - Q
LA Market p = 50 - Q
The company estimates its total cost function to be: TC = 40Q.
Calculate the following:
a. quantity, total revenue and profit when the company maximizes its profit and charges the same price in both markets.
b. quantity, total revenue and profit when the company charges different prices in each market and maximizes its total profit.
Explanation / Answer
a) if same price in both markets..then the quantity cannot be defined...this option is cancelled out
b) total revenue= pq = 150q-q^2 + 50q - q^2
= 200q - 2q^2
marginal revenue = 200-4q
marginal cost = 40
for profit max MR=MC
200-4q=40
q=40
total revenue = pq = 200q-2q^2
= 8000-3200
= 4800
total cost = 1600
profit = 4800- 1600
= 3200
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