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A monopolist has to decide how to price its product in two markets and how to allocate product output between them. The markets are separated geographically by a national border. Demand in the two markets is:
Q1 = 80 - P1
Q2 = 60 - P2
(Prices are in dollars and quantities are in units sold.) The monopolist's total cost is
TC = 20(Q1 + Q2).
What are the prices charged, total product shipped to each market, and total profits under the following two conditions:
a. The border is open to free trade
b. The border is closed to trade and the markets are separated (the firm can ship to both markets, but product sold in one market can not be resold in the other).
The following quotations are from an article in the Financial Times on November 9, 2007:
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