Statistics Solutions

Solution: Smith Distributing sells videocassettes in two separable markets. The marginal cost of each cassette is $2. For the first market, demand is given

Question: Smith Distributing sells videocassettes in two separable markets. The marginal cost of each cassette is $2. For the first market, demand is given by

Q 1 = 20 – 5P 1

The demand equation for the second market is

Q 2 = 20 – 2P 2

  1. If the firm uses third-degree price discrimination, what will be the profit-maximizing price and quantity in each market? How much economic profit will the firm earn?
  2. If the firm charges the same price in both markets, what will be the profit-maximizing price and total quantity? How much economic profit will the firm earn?

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