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?)
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