ps5v2q - PROBLEM SET 5 VERSION 2 Economics 201 Georey Jehle...

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PROBLEM SET 5 VERSION 2 Economics 201 Geoffrey Jehle Present all final answers neatly on these pages—please do your scratch work somewhere else. Remember to attribute help received.
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1. A profit-maximizing monopolist with no fixed costs has increasing marginal costs given by mc = 4 q , where q is the firm’s total output. The monopolist can sell her output in two geographically separate markets. Demand in the two markets is, respectively Market 1 P 1 = 48 - 44 q 1 , Market 2 P 2 = 26 - 64 q 2 , where q i is the quantity of output sold in market i = 1 , 2. Assume the firm can prevent all resale of its product between Markets 1 and 2. WARNING: Do not round until you have your answer (if then)! Cumulative rounding errors can make your final answers way off. a. How much total output does the firm produce? How much does it sell in each market? q * = q * 1 = q * 2 = b. What price does the firm charge in each market? P * 1 = P * 2 = c. In the firm’s profit-maximizing equilibrium, what is the elasticity of its demand curve in each of its two markets?
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