a. In order to maximize profit, what price should the monopolist charge in Marke

Question

a. In order to maximize profit, what price should the monopolist charge in
Market A? What is the quantity sold in Market A? (1 pt.)
b. What are the profit-maximizing price and quantity in Market B? (1 pt.)
c. What is the profit-maximizing monopolist’s total profit? (1 pt.)
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d. Compared to a perfectly competitive market, what is the loss in consumer
surplus if the monopolist maximizes profit in both markets? (1 pt.)
e. Why is the price mark-up higher in Market A than in Market B? (1 pt.)

Explanation / Answer

(a) The monopolist should charge $10 in Market A. The quantity sold in Market A is 90.

(b) The profit-maximizing price is $9 and quantity is 130 in Market B.

(c) Profit = (10 - 5) * 90 + (9 - 5) * 130 = $970

(d) Loss in consumer surplus in market A = (5*90) + (5*90) /2 = $675

    Loss in consumer surplus in market B = (4*130) + (4*130) /2 = $780

    Total loss in CS = $675 + $780 = $1455

(e) The price mark-up higher in Market A than in Market B because demand is less elastic in market A.

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