Suppose that your firm is the only producer of a high-tech sports utility vehicle for North American markets. Assume a constant marginal cost of $25,000 to produce each vehicle and no fixed costs of production.
a) The US demand for the vehicle is given as QUS = 18,000 - 400 PUS where price is in thousands of dollars. Supposing your firm supplies the US only, what quantity of vehicles should you produce, what price will you charge, and what profits will you make?
b) The Canadian demand for the vehicle is given as QCAN = 8,000 - 100 PCAN where price is in thousands of (US) dollars. Supposing your firm supplies Canada only, what quantity of vehicles should you produce, what price will you charge, and what profits will you make?
c) Suppose now that your firm is a US company, but that you can freely export vehicles to the Canadian market. Suppose also that you can make a Canadian version of the vehicle and a US version, so that the markets are completely separate (i.e., the conversion of a Canadian vehicle to a US version is very expensive, and vice versa). What quantity of vehicles should you produce and sell in Canada, what quantity of vehicles should you produce and sell in the US, and what will your profits be?