1. LOBO has market power in the Alpargata industry, and it sells output in Madrid and...

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1. LOBO has market power in the Alpargata industry, and it sells output in Madrid and Barcelona. The demand curves face by Alpargata in the two cities are given by PM=480-10qm in Madrid and PÂ=400-5q³ in Barcelona. Assume LOBO has a single factory in Madrid where it produces all of its output. This factory has a total cost of production given by TC(q)=1000+10q², where q=qM+qв. Assume that there is no shipping cost and arbitrage is not possible. a) What price and quantity pair does LOBO choose in each city? b) Assume now that shipping the output to Madrid is zero, whereas it costs 40 per unit to ship output to Barcelona. What price and quantity pair does LOBO choose in each city? (help: the easiest way to solve this part of the exercise is to assume that shipping costs reduce the marginal revenue of each unit sold in Barcelona by 40) c) Assume the case in b). Now in addition to shipping cost, the firm has to pay a lump sum tax of 740 to the regional government if it sells a positive amount in Barcelona. What price and quantity pair does LOBO choose in each city? 1. LOBO has market power in the Alpargata industry, and it sells output in Madrid and Barcelona. The demand curves face by Alpargata in the two cities are given by PM=480-10qm in Madrid and PÂ=400-5q³ in Barcelona. Assume LOBO has a single factory in Madrid where it produces all of its output. This factory has a total cost of production given by TC(q)=1000+10q², where q=qM+qв. Assume that there is no shipping cost and arbitrage is not possible. a) What price and quantity pair does LOBO choose in each city? b) Assume now that shipping the output to Madrid is zero, whereas it costs 40 per unit to ship output to Barcelona. What price and quantity pair does LOBO choose in each city? (help: the easiest way to solve this part of the exercise is to assume that shipping costs reduce the marginal revenue of each unit sold in Barcelona by 40) c) Assume the case in b). Now in addition to shipping cost, the firm has to pay a lump sum tax of 740 to the regional government if it sells a positive amount in Barcelona. What price and quantity pair does LOBO choose in each city?

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a To find the equilibrium price and quantity in each city we need to set the marginal ... View the full answer