Consider a monopolistic firm that can produce any quantity of its product at a constant marginal cost equal to $20,000 and a fixed cost of $10 billion. Its products could be sold in two different markets: Europe and U.S.. The demand in these markets is given by: QE = 4,000,000 - 100PE and QU = 1,000,000 - 20PU .
(a) What quantity should the firm sell in each market and what should the price be in each market? What should the total profit be?
(b) If the firm is forced to charge the same price in each market, what would be the quantity sold in each market, the equilibrium price, and the company’s prot?