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Suppose you send specialty aluminum products from a mill to two different markets.You think that demand may be
Suppose you send specialty aluminum products from a mill to two different markets. You think that demand may be
different in the markets and your consultant (an SAU MBA grad) agrees. She has measured demand in the markets as:
Qa = 10,000 - 40*Pa and Qb = 8000 - 60 Pb
where Qa is the quantity in market a, Qb is the quantity in market b, and the prices are appropriate to the two markets. Assume that marginal cost of production is $75 per unit and that buyers pick up the product at your mill, so transportation is no cost to you.
a. Suppose that you do not price discriminate. What is the optimal price, and quantity for the markets? What are your total revenue and profit? b. If your goal is to maximize your profits, what are the optimal prices, quantities, revenues, and profits in the markets. Is this an increase in total profit? If so, by how much.