A patent gave Sony a legal monopoly to produce a robot dog called Aibo (“ eye- BO”). The Chihuahua- size pooch robot can sit, beg, chase balls, dance, and play an electronic tune. When Sony started selling the toy, it announced that it would sell 3,000 Aibo robots in Japan for about $ 2,000 each and a limited litter of 2,000 in the United States for $ 2,500 each. Suppose that Sony’s marginal cost of producing Aibo robots was $ 500. Its inverse demand function was pJ = 3,500 - 12 QJ in Japan and pA = 4,500 – QA in the United States. Solve for the equilibrium prices and quantities (assuming that U.S. customers cannot buy robots from Japan). Show how the profit-maximizing price ratio depends on the elasticities of demand in the two countries. What were the deadweight losses in each country, and in which was the loss from monopoly pricing greater?
Answer to relevant QuestionsIn Q&A 10.2, calculate the firm’s profit with and without a ban against shipments between the two countries.In the nonlinear price discrimination analysis in panel a of Figure, suppose that the monopoly can make consumers a take- it-or-leave-it offer. a. Suppose the monopoly sets a price, p*, and a minimum quantity, Q*, that a ...A monopoly sells two products, of which any given consumer wants to buy only one (and places no value on the other good). If the monopoly can prevent resale, can it increase its profit by bundling the goods, forcing ...Many retail stores offer to match or beat the price offered by a rival store. Explain why firms that belong to a cartel might make this offer.Why does differentiating its product allow an oligopoly to charge a higher price?
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