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Available for sale in both markets

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Reference no: EM131515706

Part A.

Assume that XYZ Company is a profit maximizer by selling QA and QB units of its product in two different markets, A and B, respectively, under the following conditions:

Demand for Q in Market A: PA = 5 - QA

Own Price Elasticity in Market A: εA = -2

And

Demand for Q in Market B: PB = 6 - QB

Own Price Elasticity in Market B: εB = -2.5

Also, the total amounts of Q available for sale in both Markets A and B are limited as follows:

Production and sales limit for Q is:   QA + QB = 8

1. Given the above set of information, if XYZ company charges the same price of $2 for Q in both Markets A and B (i.e., PA = PB = 2), do you think XYZ is optimizing its sales practice? Justify your answer.

2. Given your findings above, what do you think XYZ should do in this situation? Should XYZ sell a larger (or smaller) quantity in Market A than in Market B?

3. Given the above set of information, determine the price to be charged and the quantity to be sold in each of Markets A and B.

 

Market A

Market B

Quantity Sold

?

?

Price Charged

?

?

Part B.

If a profit-maximizing monopolistic firm has a total cost function of: TC = 10 + 2Q and has the own price elasticity of -1.5, what should be the optimal price for this firm to charge in the market?

Reference no: EM131515706

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