Problem
The saga food company produces one type of frozen dinner sold directly to consumers and to restaurants. The inverse demand and marginal revenue functions for saga's frozen dinner by consumers (market 1) and restaurants (Market 2) are, respectively,
P1=550-5Q1 and P2=300-1.25Q2
Saga's total cost function is TC=10,000+50Q.
What profit maximizing rule will saga food company employ to set prices as a price discriminator?
Algebraically determine the best level of output and how the firm should distribute its sales in each market inorder to maximise total profits with price discrimination, and compute the price charged in each market and the total profit.