Your weapons company, Top GunZ, sells fighter jets to two countries. The jets can be produced at a constant marginal cost of $10 million. The demand for jets in the two countries can be represented as: QA = 100 – 2p QB = 80 – 4p
a. Assume that the countries are allies and that you cannot charge different prices to them. Draw the combined demand curve on the axes below. (hint: hint you need to add them horizontally – think about what demand would be at p = 0; p = 20, etc.)
b. Assume that the optimal monopoly price is $30. Draw the deadweight loss from the monopoly pricing in the picture above.
c. Now assume the two countries grow hostile to each other. You can now charge them different prices. What would be the optimal prices to charge countries A and B?
d. Has the deadweight loss increased or decreased as a result of being able to charge different prices to different countries?