Case Scenario:
You are the marketing manager of a firm that produces Titanium and sells this metal to two distinct kinds of customers: aircraft producers and golf club manufacturers. Demand for Titanium by these two market segments is quite different, as described by the respective price equations: PA = 10 - QA./600 and PG = 12 - QG./100, where annual quantities are in thousands of pounds and prices are in dollars. Your firm estimates the marginal cost of titanium production at $4 per pound.
1) For each segment, determine the firm's profit-maximizing price and output. Is the firm practicing price discrimination?
2) Because of Titanium shortages, the firm's total production capacity drops to only 1.5 million pounds per year. Determine the firm's optimal quantities and prices in this case.