solution

Ann McCutcheon is hired as a consultant to a firm producing ball bearings.

This firm sells in two distinct markets, each of which is completely sealed off

from the other. The demand curve for the firm’s output in the first market is

P1 = 160 – 8Q1, where P1 is the price of the product and Q1 is the amount

sold in the first market. The demand curve for the firm’s output in the second

market is P2 = 80 – 2Q2, where P2 is the price of the product and Q2 is the

amount sold in the second market. The firm’s marginal cost curve is 5 + Q,

where Q is the firm’s entire output (destined for either market). Managers ask

Ann McCutcheon to suggest a pricing policy.

a. How many units of output should she tell managers to sell in the second

market? b. How many units of output should she tell managers to sell in the first

market? c. What price should managers charge in each market?

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