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The following shows the demands and marginal revenue in two markets (D1 and MR1, and D2 and MR2) for a price discriminating firm along with total demand, DT, marginal revenue, MRT, and marginal cost MC. As with the PPT slides, you can view the data generating these lines; for reference,

D1=600–0.5Q

D2=800–0.5Q

MRT=700–0.5Q

DT=700–0.25Q

MC=0.0009Q2–0.5Q+376

900 800 D2 700 MR2 600 D1 DT MR1 MC 500 400 MRT 300 200 100 900 800 700 500 600 400 300 200 100 Quantity DT - MC MRT MR2 ...

The graph shows two sets of demand (D1,D2D1,D2) and marginal revenue (MR1,MR2MR1,MR2) curves for individual markets 1 and 2, with quantity on the horizontal axis, and price and cost in dollars on the vertical axis. D1D1 and MR1MR1 have vertical intercepts of $600; MR1MR1 has horizontal intercept of 600 units, and D1D1 would have horizontal intercept of 1200 units (not shown). D2D2 and MR2MR2 have vertical intercepts of $800; MR2MR2 has horizontal intercept of 800 units, and D2D2 would have horizontal intercept of 1600 units (not shown). A total marginal revenue curve (MRTMRT) is shown, beginning at (200 units, $600, where it coincides with MR2MR2) and sloping down to have a horizontal intercept at 1400 units (not shown). A total demand curve (DTDT) is shown, beginning at (400 units, $600, where it coincides with D2D2) and sloping down to have a horizontal intercept at 2800 units (not shown). Marginal cost MCMC is shown decreasing below 275 units of output, and increasing after 275 units of output (minimum MCMCis at about (275 units, $306)); MCMC intersects MR1MR1 at about (290 units, $307); MR2MR2 at about (460 units, $340); D1D1 at about (500 units, $350); MRTMRT at (600 units, $400); D2D2 at about (680 units, $460); and DTDT at about (750 units, $510).

A. How should that output be allocated between markets 1 and 2?

B. What price should the firm charge in each market?

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Answer #1

A. price discriminating monopoisi maximiges The MC MR 2 = MRI = 290 MRI uts MC The at a2 = 460 MR 2 = 30 wits out put tota Th

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