Question

1. A firm making external hard drives has a cost function c(y) = 4y + 1000. Its demand function is y = 200 – 0.8p.
a. Calculate the profit-maximizing price and quantity. (3 points)
b. The firm decides to enter the Mexican market. It determines that its demand function in Mexico is y = 40 – p. The cost function remains the same. What price should it charge in Mexico, and what quantity should it sell? (3 points)

c. Would you say the firm is price discriminating? Why or why not, and if yes what type of price discrimination is this? If people began trading these hard drives freely between the US & Mexico, what would happen to the price? (Add the two demand functions together to get a combined demand function for both countries.) Would total surplus be higher or lower than when the hard drives were not being traded across the border, and why?

Answer 1

According to HOMEWORKLIB RULES ,the first 4 subparts have been answered.