A monopolist is deciding how to allocate output between two geographically separ

Question

A monopolist is deciding how to allocate output between two geographically separated markets (East Coast and Midwest). Demand and marginal revenue for the two markets are: P 15-a, MR, -15-20, P2 25-202 MR2 -25-402 The monopolist's total cost is C-5+5(Q1 +Q2) What are price, output, profits, marginal revenues, and deadweight loss if the monopolist can price discriminate? (round all answers to two decimal places) In market 1, the price is $L and the quantity is 11. In market 2, the price is $and the quantity is

Explanation / Answer

Market 1

Use MR = MC

15 - 2Q1 = 5

2Q1 = 10

Q1 = 5, P1 = 10, DWL = 0.5*(10 - 5)*(10 - 5) = 12.50

Market 2

MR = MC

25 - 4Q2 = 5

Q2 = 20

Q2 = 20/4 = 5, P2 = 15, DWL = 0.5*(10 - 5)*(15 - 5) = $25

Profit = P1Q1 + P2Q2 - C

= 5*10 + 5*15 - 5 - 5*(10 + 5)

= 125 - 75

= $50.

Hence, in market 1 price is 10, quantity is 5 units

In market 2 price is 15 and quantity is 5 units

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