View the step-by-step solution to:

A company sells books to members of two distinct stationeries that are isolated from each other. Stationary 1's inverse demand curve is: p 1 = 72 -...

1.      A company sells books to members of two distinct stationeries that are isolated from each other. Stationary 1's inverse demand curve is: p1 = 72 - 4q1. Stationary 2's inverse demand curve is: p2 = 48 - 2q2. The company has a total cost function equal to output squared: TC = (q1 + q2)2. The company originally maximized its profit by charging prices p1 = $48 and p2 = $36. However, this arrangement started to break down when members of stationary 2 begin reselling books to members of Stationary1. The firm decided to respond by discontinuing its price discrimination policy, and to instead charge the same price to members of both stationeries. Use the above information to answer the following:

a)     What was the firm's original level of profit?

b)     What is the firm's new level of profit with p1 and p2 equal?

c)      YES or NO - Do both clubs continue to buy books absent price discrimination? (i.e., are both q1 and q2 still > 0?)

 

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question