Question

(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—market A and market B—the price the monopolist should charge in market A to maximize profits is dollars while a price of dollars should be set in market B. Additionally, profit the monopolist earns by setting these prices in the segmented markets is dollars. Now assume arbitrage begins to become extensive within these two markets. The monopolist will then set one price that lies between dollars and dollars. (5 pts.) Market A Market B $ 10 $15 . 104 MC = AC 5 - MC = AC i 60 80 100 MR 50 100 150 MR Q

Answer 1

1) The price monopolist should charge in Market A to maximize profit is 10 dollar, while a price of 15 dollar should be set in market B.

Explanation:

To maximize profit, the monopolist will produce where MR = MC.

In market A, MR = MC at 60 units and at 60 units the price is $10 ( by demand curve)

In market B, MR = MC at 50 units and at 50 units the price is $15 ( by demand curve).

2) Profit in the segmented market = $740

Profit in Market A = TR - TC = P*Q - AC*Q

10*60 - 6*60 = 240

Profit in Market B = 15*50 - 5*50 = 500

Profit = 500+240 = 740

3) One price between $10 and $15