4. GoPro holds a monopoly in two countries where it sells video cameras, USA and

Question

4. GoPro holds a monopoly in two countries where it sells video cameras, USA and Canada. The demand functions for the two regions are,

Q(USA)=105-­P(USA)

Q(CANADA)=42.5-­.5P(CANADA)

GoPro has a unique manufacturing process where it can produce each video camera for $20. Assume there are very strict laws that prevent the resale of the product across borders

. A. What is the price and quantity produced in both markets?

B. Show that the relationship from part A also holds when evaluated with elasticities.

Explanation / Answer

a)

Price In both the countries would be 20.

Plugging 20 in equation 1 we get:

Q(USA) = 105 – 20

                =85

Q(Canada) = 42.50 – 0.5x20

                                = 32.50

b)

As the price increase, demand for commodity decreases and vice versa. Similarly if the prices increases in US or Canada, demand will decrease and producers will have to decrease the price again. Therefore, there is high degree of elasticity in the demand of video camera.

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