Question

During the Iran–Iraq war, the same arms merchant often sold weapons to both sides of the conflict. In this situation, a different price could be offered to each side because there was little danger that the country offered the lower price would sell arms to its rival to profit on the difference in prices. Suppose a French arms merchant has a monopoly of Exocet air-to-sea missiles and is willing to sell them to both sides. Iraq’s demand for Exocets is P = 400 - 0.5Q and Iran’s is P = 300 - Q, where P is in millions of dollars. The marginal cost of Exocets is MC = Q. What price will be charged to each country?



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  • CreatedDecember 12, 2014
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