A monopolistic manufacturer of high-end leather goods sells a particular type of leather handbag through company-owned stores.

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Question:

A monopolistic manufacturer of high-end leather goods sells a particular type of leather handbag through company-owned stores. The company operates two different types of stores. Type 1 stores are located in upscale shopping malls and are visited by consumers who highly value the company’s brand name. The demand curve for handbags sold through these types of stores is given by Q₁ = 4000 - 4 P₁, where P₁ is the price in $ per handbag and Q₁ is the number of handbags sold per quarter. The identical handbag is also sold through Type 2 stores that are located in factory-outlet malls. These stores are visited by consumers who, on average, are more price-sensitive than those who visit the Type 1 stores. The demand curve for handbags sold through these types of stores is given by Q₂ = 6000 – 16 P₂, where P₂ is the price in $ per handbag and Q₂ is the number of handbags sold per quarter. The marginal cost is $50 per handbag for both types of stores.

Suppose first that the monopolistic manufacturer wants to charge the same price in both shops to avoid arbitrage by consumers. What is the profit-maximizing total quantity of handbags sold in both outlets per quarter? What is the corresponding profit-maximizing price?
Q =
P =
Suppose that the monopolist manufacturer now uses price discrimination, i.e., charges a different price in each outlet. What is the profit-maximizing quantity of handbags sold in each type of outlet per quarter? What is the profit- maximizing price of handbags sold in each type of outlet?

Q₁ =
Q₂ =
P₁ =
P₂ =

Again, suppose that the monopolist manufacturer uses price customization, i.e., charges a different price in each outlet. Suppose that the demand curves for Type 1 and Type 2 stores are again as in the main text, i.e., Q₁ = 4000 - 4 P₁ and Q₂ = 6000 –16 P₂ . However, you have been informed that due to a disruption in production, there are only 2000 handbags available for sale for that quarter. Given that there are only 2000 handbags available, what is the profit-maximizing quantity of handbags sold in each type?

Q₁ =
Q₂ =