Assume a monopolist separates its consumers into two distinct submarkets characterized by the demand curves QD 1 = 30−0.25P1 for submarket one and QD 2 = 50 − 0.5P2 for submarket two. For any specific quantity of output selected, the value of the price elasticity of demand in submarket one is less elastic than that for submarket two. (E1 < E2) Assume that the total cost function is T C = 40QT , where QT = Q1 + Q2. We determine the profit maximizing level of output in submarket one as Q∗ 1 = 10 units. For submarket two, Q∗ 2 = 15 units. We compute the corresponding prices: P ∗ 1 = $80 and P ∗ 2 = 70. Finally, we calculate the firm’s total profit, πT , expressed as πT = T R1 + T R2 − T C = $850.

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