Managers at movie studies, such as Warner Brothers, must decide on the price they set for their DVDs. In May 2017, the Looney Tunes Golden Collection with 24 DVDs sold for

$139 in the United States and the equivalent of $45 in the United Kingdom. The managers at Warner Brothers were price discriminating between the two regions. The demands of the markets were different, and resales of DVDs between the two markets are nearly impossible because DVDs use region encoding, which allows use only within a specified geographic area.

Suppose that you are a manager in charge of pricing DVDs for another studio. The following table gives hypothetical data on the marginal cost of producing DVDs and the demand and marginal revenue for the United States and Europe.

All quantities are in millions, and all costs and revenues are in U.S. dollars. To maximize profit,

a. What quantity of DVDs should you produce?

b. What quantity of DVDs should you sell in the United States? In Europe?

c. What price should you set in the United States? In Europe?

Transcribed Image Text:

Marginal Cost Demand and Marginal Revenue Quantity MC Qus Pus MRUS QEU PEU MREU 2 $6.00 1 $11.50 $10.00 1 $8.50 $8.00 3 7.00 2 11.00 9.00 4 8.00 3 10.50 8.00 23 8.00 7.00 3 7.50 6.00 5 9.00 4 10.00 7.00 4 7.00 5.00 6 10.00 LO 9.50 6.00 5 5 6.50 4.00