Question

A monopolist sells in two geographically divided markets, the East and the West. Marginal cost is constant at $50 in both markets. Demand and marginal revenue in each market are as follows:
QE = 900 - 2PE
MRE = 450 - QE
QW = 700 - PW
MRW = 700 - 2QW
a. Find the profit-maximizing price and quantity in each market
b. In which market is demand more elastic?

Answer 1

Answer:

A) QE = 400, PE = 250

     QW = 325, PW = 375

b) east market has more elastic market demand

Explanation:

Given data :

Marginal cost = $50 ( both markets )

demand and marginal revenue in each market are given differently

a) Determine/find the profit-maximizing price and quantity in each market

For east market :

50 = 450 - QE

hence QE = 450 -50 = 400

since QE = 400 ( quantity for east market )

400 = 900 - 2PE

PE = 250 ( PROFIT maximizing price for east market )

For west market

50 = 700 - 2QW

Hence QW = 325

since QW = 325

325 = 700 - pw

PW = 375

B) The market in which demand is more elastic is the east market because the quantity demanded is higher and also the profit maximizing price is lower as well