Question: Please explain how this calculation was carried out step by step and the diagram please, thanks ! EXAMPLE 13.4 A monopolist has marginal costs MC



Please explain how this calculation was carried out step by step and the diagram please, thanks !



EXAMPLE 13.4 A monopolist has marginal costs MC = Q and home market demand P = 30 - Q. The monopolist can also sell to a foreign market at a constant price PF = 12. Find and graph the quantity produced, quantity sold in the home market, quantity sold in the foreign market and price charged in the home market. Explain why the monopolist's profits would fall if it were to produce the same quantity but sell more in the home market. The linear demand curve P = 30 - Q has associated marginal revenue MR = 30 - 2Q. The profit-maximizing level of output for a monopolist selling to segmented markets occurs where EMR = MC. The horizontal sum of the marginal revenues across markets is the home marginal revenue function MRH up to home output where MR1: = MRH, and then the foreign marginal revenue function MR1: = 12 for any further units (see Eigune M). Total marginal revenue equals marginal cost at MR1: = MC, which solves for Q = 12. Marginal cost for this level of output equals home marginal revenue at 30 - ZQH = 12, so QH= 9, with the remaining units sold abroad: QF=Q -QH/ = 12 - 9=3 In the home market, the monopolist charges PH = 30 - QH = 30 - 9 =21N _| r'x CL v Q.) -B X. CL. _\\ M 30 Quantity (0) FIGURE 13.18 A Monopolist with a Perfectly Elastic Foreign Market The curve EMR follows MRH as long as MRH Z MRF, and then follows MRF. The prot-maximizing output level is where the EMR curve intersects the MC curve, here Q\" =12. Any further units sold at home would yield marginal revenue less than 12. Since sales to the foreign market yield a constant marginal revenue of 12, shifting sales to the home market would decrease prots due to the lost marginal revenue for each unit shifted
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