A monopoly sells its goods in the U.S. and Japanese markets. The American inverse demand function is: PA = 140-3QA and the Japanese inverse demand function is: PJ = = 100 - 2QJ Assume that the firm's marginal cost of production is m = 50 in both countries. (a) If the firm can price discriminate (prevent resale between markets), what price will it charge, how much will it produce, and how much profit will it earn in each market. (b) Resolve the problem assuming that the firm cannot price discriminate (e.g., PA = PJ = p). (c) Compare your results from (a) and (b). How does price discrimination impact the firms' profits? How does it impact consumers in the American and Japanese markets?
A monopoly sells its goods in the U.S. and Japanese markets. The American inverse demand function is: PA = 140-3QA and the Japanese inverse demand function is: PJ = = 100 - 2QJ Assume that the firm's marginal cost of production is m = 50 in both countries. (a) If the firm can price discriminate (prevent resale between markets), what price will it charge, how much will it produce, and how much profit will it earn in each market. (b) Resolve the problem assuming that the firm cannot price discriminate (e.g., PA = PJ = p). (c) Compare your results from (a) and (b). How does price discrimination impact the firms' profits? How does it impact consumers in the American and Japanese markets?
Chapter9: Monopoly
Section: Chapter Questions
Problem 7SQP
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Transcribed Image Text:3. A monopoly sells its goods in the U.S. and Japanese markets. The American inverse
demand function is:
PA
=
1403QA
and the Japanese inverse demand function is:
PJ =
100-2QJ
Assume that the firm's marginal cost of production is m = = 50 in both countries.
(a) If the firm can price discriminate (prevent resale between markets), what price
will it charge, how much will it produce, and how much profit will it earn in each
market.
(b) Resolve the problem assuming that the firm cannot price discriminate (e.g., Pa =
PJ = p).
(c) Compare your results from (a) and (b). How does price discrimination impact
the firms' profits? How does it impact consumers in the American and Japanese
markets?
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Step 1: Determine the given information:
VIEWStep 2: Part a) Determine the optimal value of quantity, price and profit in American market:
VIEWStep 3: Part a) Determine the optimal value of quantity, price and profit in Japanes market:
VIEWStep 4: Part b) Determine the monopoly output, price and profit if price discrimination is not possible:
VIEWStep 5: Part c) Comparison of the results of part a and part b:
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