A patent gave Sony a legal monopoly to produce a robot dog called Aibo (“eye-BO”). The Chihuahuasized robot could sit, beg, chase balls, dance, and play an electronic tune. When Sony started selling the toy in July 1999, it announced that it would sell 3,000 Aibo robots in Japan for about $2,000 each and a limited litter of 2,000 in the United States for about $2,500 each. Suppose that Sony’s marginal cost of producing Aibos is $500. Its inverse demand curve was pJ = 3,500 - 1 2 QJ in Japan and pA = 4,500 - QA in the United States. Solve for the equilibrium prices and quantities (assuming that U.S.

customers cannot buy robots from Japan). Show how the profit-maximizing price ratio depended on the elasticities of demand in the two countries. What are the deadweight losses in each country, and in which is the loss from monopoly pricing greater? M