Question: Suppose a monopoly can produce any level of output it wishes at a constant marginal (and average) cost of $5. Assume that the monopoly sells it goods in two different markets that are separated by some distance. The demand curve in the first market is given by:

P \[_{_{1}}^{{}}\] = 110 – 2Q \[_{1}\]

and the curve in the second market is given by

P \[_{2}\] = 16 – \[\frac{1}{2}\] Q \[_{2}\]

1. What level of output should be produced in each market and what price will prevail in each market? What are total profits in this situation?
2. How would your answer change if it only cost customers $2 to transport goods between the two markets?

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