Question: The cost function for a monopoly is given by C = 100 + 8Q. The firm sells its output in two distinct markets between which

The cost function for a monopoly is given by C = 100

+ 8Q. The firm sells its output in two distinct markets between which price discrimination is possible. The (inverse) demand curves in the two markets are given by:

P1 = 20

– 2Q1 P2

= 40

– Q2

(a) Determine the profit-maximizing amounts sold in each market and, hence, the firm’s total output.

(b) Determine the price charged by the monopoly in each market and calculate the total profits of the firm.

(c) Show that the higher price is charged in the market with the lower elasticity of demand.

(d) What is the intuition behind this result?

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