Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 21

Suppose a textbook monopoly can produce any level of output it wishes at a constant marginal (and average) cost of $5 per book. Assume that the monopoly sells its books in two different markets that are separated by some distance. The demand curve in the first market is given by
Q 1 =55 - P 1
and the curve in the second market is given by
Q 2 = 70 - 2P 2
a. This problem is easier to solve if you work out the following preliminary result. Show that for a downward-sloping linear demand curve, profits are maximized when output is set at Q*/2, where Q is the output level that would be demanded when P = MC.
b. If the monopolist can maintain the separation between the two markets, 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?
c. How would your answer change if it cost demanders only $3 to mail books between the two markets? What would be the monopolist's new profit level in this situation? How would your answer change if mailing costs were 0?