Suppose that a monopoly has a constant marginal cost (MC = $5) per unit of output produced. The monopolist sells its goods in two different markets that are separated by some distance. The demand curve in the first market is given by Q1 = 55 -P1 (and MR1 = 55 -2Q1) and for the second market by Q2 = 70 -2P2 (and MR2 = 35 -Q2).
a. If the monopolist can maintain the separation of the two markets, what will be equilibrium price and quantity in each market? What will be the monopolist'stotal profits?
b. Suppose that it costs demanders only $5 to transport goods between the two markets. How would your answer change about equilibrium prices and quantities in the two markets? What would be the monopolist's total profits in this situation?
c. Suppose transportation costs were zero and the monopolist was forced to follow a single-price policy. What would be the equilibrium prices and quantities now? What would be the monopolist's profits?