A monopolist can sell in two markets. In the U.S.A. it faces demand given by:
QUS = 5500 –100PUS, while in Europe it faces demand given by QEU = 18000 – 400PEU.
a) What is the practice of charging different prices in different markets called?
Why is it often not possible to price discriminate between markets?
b) The firm has fixed costs of $20,000 even if it produces nothing, and it has marginal costs of $15 for each unit it produces. Find the profit maximizing price and quantity sold in each market. What is the firm’s profit?
c) Now the firm has access to a new technology with no fixed costs but slightly increasing marginal cost: MC = 0.075Q. Find the profit maximizing price and quantity sold in each market. How much will the firm produce with each technology. What is the firm’s profit?
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