Suppose that the publishers of J.K. Rowling’ final volume in the Harry Potter se

Question

Suppose that the publishers of J.K. Rowling’ final volume in the Harry Potter series estimate that inverse demand weekly for this book in the United States is PUS = 50 – qUS and in Europe is PEU = 60 – ½ qEU. Assume that each week there are 1000 consumers who by a book in the United States and 1200 in Europe. Assume that the cost function of the monopolist is C = 5000 + 20q.

a. Assume that the publisher treats the two markets as a single, integrated market. Compute aggregate demand ant any price P by adding horizontally both demand curves and taking into account the number of consumers in each country per week.

b. Compute the marginal revenue from the individual demands and from aggregate demand in part a.

c. Draw in one graph the demand function of United States (and its marginal revenue you computed in part b), in another graph the demand function of Europe (and its marginal revenue you computed in part b), and in a third graph aggregate demand you computed in part a (and its marginal revenue you computed in part b).

d. Compute the non-discrimination optimal quantity and price (use aggregate demand and its marginal revenue). Draw a graph illustrating the equilibrium. Compute aggregate profits.

e. Compute the third-degree price discrimination optimal quantities and prices in each market (Untied States and Europe). Draw two graphs illustrating the equilibrium. Compute profits in each market and aggregate profits.

f. Compute the profits that a perfect-discriminating monopoly would obtain in this market. Compare these profits with the ones you obtained in parts d and e.

Explanation / Answer

Suppose that the publishers of J.K. Rowling’ final volume in the Harry Potter se

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