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    Question

    A monopolist sells its product in two separate markets with different price elasticities of demand. The marginal cost of production is constant at $20 per unit. The price elasticity of demand in Market 1 is −2-2−2 and in Market 2 is −3-3−3. What are the profit-maximizing prices in Market 1 and Market 2?

    A $30 in Market 1 and $25 in Market 2 Correct Answer Incorrect Answer
    B $25 in Market 1 and $30 in Market 2 Correct Answer Incorrect Answer
    C $20 in Market 1 and $20 in Market 2 Correct Answer Incorrect Answer
    D $ 40 in Market 1 and $30 in Market 2 Correct Answer Incorrect Answer

    Solution

    To find the profit-maximizing prices, we use the formula from monopoly learner index/monopoly power- L= ((P-MC)/P) = 1/e => P = (MC/(1-1/e)) Given MC and e for both markets P1= 40           and P2= 30.

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