Question

Textbook manufacturers in the United States often charge different prices for the same textbook sold in Domestic and Foreign markets. Consider the following problem. Suppose that I am the sole seller of G.LT.E (Greatest Intermediate Textbook Ever). The Domestic and Foreign Demand for my textbook is equal to the following: Pp = 200 - QD Pr = 150 - OF My cost function for producing textbooks is C(Q) = 1000 (a) (5 points) If I maximize profit and am able to charge different prices in the Domestic and Foreign markets for G.LT.E, then determine the price of the textbook in the foreign and domestic markets. (b) (5 points) How much profit do I eam if I charge different prices for G.LT.E?

Answer 1

PRICE IN DOMESTIC MARKET 150

PRICE IN FOREIGN MARKET 125

PROFIT IN DOMESTIC MARKET 2,500

PROFIT IN FOREIGN MARKET 1,250

SEE IMAGES FOR EXPLANATION

Page No. E - Grivendi po = 200-RA (Domestic Demand - Pe- 15o - Of I foreign Demand cost dl@- 100Q Answer @ determine price of text book in the foreign and domestic marials - To find Marginal price & Quantity in market MR = MC - Marginal 7 tost = (Domestic TR = PxQo Domestic ) 1200-RmQD TR = 2000 - ab We get Mol bomestica) By Diferentiating DIR - 200(1– 200 - MRO-200 - 200 | TR Worot Qo canned with CamScanner

Date : Page No. Total Revenue (foreign) = p XQE - 1150-de la TR = 150 Qf - Q Differentiate TR wirit Qe MR = 150 - 204 2 . TMRE= 150-QE we have - To ICE loove find MC Differentiate - Wort a MC=100 TC Now, we find price & Quantity in Domestic and foreign market Domestic Marleet. - MB=MC consenso 200-200 sloo

Date : Page No. 200-loos 200. loo QD 20:50 - Domestic Quantity Po= 20o-QD Po=200-50 Po=150 -Domestic price In Domestic Maslat po = 150, 2050 a Now, foreign Market MRE - MC 150- QF = 100 150-100 = Qf 1 Of = 50 foreign Ohnutity fra 150 - Of - 2 150 – 5025 Scanned with CamScanner

PE- 150-25 TPf- 125 foreign price foreign Market Price Pe- 125 , Qf 50 b) profit ? I I IN Domestic Market proft - TR - TC 2 Pollor. looQD = 150 X50 - 100(50) - 7,500 – 5,000 1=2,500 Domestic profit CScanned with CamScanner

| Page No. foreign Market prokut TR-TC = PA XQf = loop = 125X50 - loo X50 = 6,250 - 5,000 -1.250 1-foreign market profit Scanned with CamScanner